Younger me it turns out was an idiot, and I'd like to make changes

wingingit_3

Hi all

Long time lurker, first time poster. Basically I've been stuck in a debt loop for years now. I can always service the debt, but not very quickly! I'd like to get debt free as quickly as possible (as I'm sure we all would.....). I've just been to see my bank who I have £9600 of unsecured debt with, and they suggested:

- personal loan for £8000 consolidation (£164 a month) to tackle most debt. 8.9% interest
- increasing my mortgage by 10k (£54 a month)

I don't quite know what to do. As can be seen below, either option saves me money on a monthly basis, but I can't work out whether I'm better off reigning in my spending and paying off slowly, or the above options they suggest.

Any ideas?

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 1
Number of children in household......... 0
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 2277
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2277

Monthly Expense Details
Mortgage................................ 677
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 100
Council tax............................. 90
Electricity............................. 10
Gas..................................... 40
Oil..................................... 0
Water rates............................. 20
Telephone (land line)................... 0
Mobile phone............................ 27
TV Licence.............................. 11
Satellite/Cable TV...................... 0
Internet Services....................... 17.5
Groceries etc. ......................... 150
Clothing................................ 50
Petrol/diesel........................... 10
Road tax................................ 11
Car Insurance........................... 50
Car maintenance (including MOT)......... 10
Car parking............................. 0
Other travel............................ 147
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 12
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 20
Haircuts................................ 15
Entertainment........................... 100
Holiday................................. 30
Emergency fund.......................... 0
Total monthly expenses.................. 1597.5


Assets
Cash.................................... 0
House value (Gross)..................... 335000
Shares and bonds........................ 0
Car(s).................................. 500
Other assets............................ 0
Total Assets............................ 335500


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 162000...(677)......1.45
Total secured & HP debts...... 162000....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Loan...........................4400......127.......6.9
CC.............................2400......50........0 (I think this is around 17%)
Overdraft......................2600......40........0 (I think this is around 18-19%)
Total unsecured debts..........9400......217.......-


Monthly Budget Summary
Total monthly income.................... 2,277
Expenses (including HP & secured debts). 1,597.5
Available for debt repayments........... 679.5
Monthly UNsecured debt repayments....... 217
Amount left after debt repayments....... 462.5

Personal Balance Sheet Summary
Total assets (things you own)........... 335,500
Total HP & Secured debt................. -162,000
Total Unsecured debt.................... -9,400
Net Assets.............................. 164,100

Reproduced on Moneysavingexpert with permission, using other browser.[/i]

I've edited to put in roughly what I think my interest payments are on the CC and loan.

thriftylass

Hello,

I would not get another loan (even if for consolidation) or mortgage increase. You are on a decent salary and have 650 in total for debt repayments. Address the reasons why you went into debt and whether you really have 462 spare. Just chuck that at the highest interest debt i.e. the loan. Do a snowball calculator and it should take you just over a year to clear this. Taking out a consolidation loan or increasing the mortgage won't make the debt go away much faster. It might just give you the impression of having paid it off (esp. the mortgage option).

Your SOA look fine to me, not much to cut drastically to make a difference I think

Good luck

MallyGirl

Turning unsecured debt into secured debt is a bad plan - it puts your home at risk. You will also pay back loads more interest this way

And the other advice is to turn £4.4k @6.9% and £5k at 0% into all of it at 8.9% - just bonkers.

You have enough left over, and could have more if you tightened your belt a bit, to knock this on the head in a couple of years.

pointless2

Er, your younger self might have been an idiot, but your current self will still be one if you take your bank up on that offer.

If your SOA is correct
- you have nearly £500 'spare' per month for debt repayment
- you are not paying interest on your OD and CC, and could easily clear them both within a year
- leaving you with some loan left to pay off at a LOWER interest rate that what your bank are offering you.
And that's without making any changes to your spending patterns.

Why on earth do you want to take on the extra debt at a higher rate? unless you actually spend / want to spend a lot more that you are prepared to admit...

enthusiasticsaver

Please, please do not take either of the options on offer from the bank. Consolidating unsecured debt to secured would be a massive mistake. Are you really paying no interest on your overdraft and credit card?

Firstly you need to address where the debts came from in the first place. If you do not sort that out and take one of the banks loan offers (which will be massively more expensive for you and put your house at risk should you default) then you will be in a constant cycle of debt.

If that soa is correct you have money left over to repay the debt - whichever is the more expensive (probably the overdraft). If you do not have money left over to overpay the debt then you need to keep a spending diary and see where all your money is going. That is quite enlightening.

Incidentally neither of the bank options saves you money. It simply delays paying the debt off which is wonderful for the bank and very expensive for you. Don't do it.

sentientpoet

First of all, congrats on taking the first steps and for wanting to do something about your debt. On the face of it, your situation is not too bad and it's certainly a positive that you want to make changes.

However, something here doesn't add up.

I'd like to make changes ... I'd like to get debt free as quickly as possible

If you want to get debt free as quickly as possible, taking on a new loan and extending your debt over a longer period and at a much higher cumulative interest rate is clearly not the way forward.

...either option saves me money on a monthly basis

Apart from the fact this route doesn't save money in the longer term, your SOA suggests you currently have £462.50 spare each month. Why do you need to 'save' money on a monthly basis in terms of debt repayments? Is your SOA an accurate reflection of current spending, or more your desired future scenario? I know how hard it can be to marry the two - it took me a long time and a lot of self-discipline to rein in my own habits!

If you really are ready for change and want to clear your debt as quickly as possible, then perhaps a short-term pain route would really help you get in control. If you limited your monthly ents spend as per your SOA and combined your current loan payment with the SOA surplus, you could overpay and clear that balance in seven months, leaving you free to tackle the zero-interest debt in the months following. You could also set aside that SOA surplus for the first two months and have a £1k emergency fund pot before tackling the debt head on.

Either way, replacing your borrowing with more expensive debt is not the way to achieve your goal.

Sorry to sound harsh, but there's either something you're not telling us or, perhaps more importantly, there's something you're not yet admitting to yourself.

wingingit_3

Thanks all for your replies!

I haven't a clue what my credit card interest is, or my overdraft for that matter. I believe they are around 17% ish.

I definitely don't want to take out the personal loan, as it won't cover the total debt properly, and is just setting myself up again for the cycle.

Why I would be tempted by the secured borrowing is that would clear my debts, wouldn't stuff up my LTV, and would only be £54 a month. That's cutting my debt repayments by around 200 quid a month, which I can save, or indeed put towards overpayments on my mortgage. I live in London, and would be intending to sell my flat in a year and a half to two years time to move in with a partner, thus clearing mortgage and secured debt at that juncture. Obviously property prices etc, but I have a pretty good cushion against negative equity if prices fall, and if they do, then they all do right?

I'm not in a terrible position debt wise, but I think my key priority is making my repayments more manageable, and enabling me to start saving some money. My SOA is probably slightly misleading, in that I definitely don't have that much of a surplus at months end! I have started a spending diary already, and as you all say, it is quite illuminating....

MallyGirl

ah - so the debt is not at 0%. You get better answers with more info.

Find out what interest you are paying on your credit card and overdraft and then take a look at the snowball calculator to work out the best way of paying off.
It still seems crazy to whack your debt onto the mortgage in order to save for ... another mortgage.
Some frugal months could have the debt gone and then the current repayments plus the surplus could be being saved in a sensible way towards the next house.

EssexHebridean

Well done for facing the issue, for a start. I'd strongly advise NOT adding anything on to your mortgage. As a general rule, turning unsecured debt into secured is a horribly bad idea! first off let's have a look at the SOA.

wingingit wrote: »

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 1
Number of children in household......... 0
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 2277
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2277

Monthly Expense Details
Mortgage................................ 677
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 100
Council tax............................. 90 You have the single person discount on this? If it;s currently spread over 10 months as standard it might help you to request to spread it over 12 months instead. Makes budgeting easier
Electricity............................. 10
Gas..................................... 40
Oil..................................... 0
Water rates............................. 20
Telephone (land line)................... 0
Mobile phone............................ 27
TV Licence.............................. 11 Are you sure? Generally it's 12.12 monthly?
Satellite/Cable TV...................... 0
Internet Services....................... 17.5
Groceries etc. ......................... 150 You can trim this at least a bit. Start off by making January the month where you eat through all the stores in your cupboards and freezer?
Clothing................................ 50 While you're looking to hammer down the debts you can cut this to essentials only
Petrol/diesel........................... 10
Road tax................................ 11 Are you paying this on Monthly DD?
Car Insurance........................... 50
Car maintenance (including MOT)......... 10
Car parking............................. 0
Other travel............................ 147
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 12
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 20
Haircuts................................ 15
Entertainment........................... 100
Holiday................................. 30 You say you're saving this monthly, but there are no cash assets shown?
Emergency fund.......................... 0 You need something in here. As a homeowner start looking to build a 1k fund, and then top it up again as and when you have to dip into it.
Total monthly expenses.................. 1597.5


Assets
Cash.................................... 0
House value (Gross)..................... 335000
Shares and bonds........................ 0
Car(s).................................. 500
Other assets............................ 0
Total Assets............................ 335500


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 162000...(677)......1.45 Nice LTV and a great mortgage rate - well done!
Total secured & HP debts...... 162000....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Loan...........................4400......127.......6.9
CC.............................2400......50........0 (I think this is around 17%) Check the APR - it will appear on the statements
Overdraft......................2600......40........0 (I think this is around 18-19%) Check the APR - it will appear on the statements
Total unsecured debts..........9400......217.......-


Monthly Budget Summary
Total monthly income.................... 2,277
Expenses (including HP & secured debts). 1,597.5
Available for debt repayments........... 679.5
Monthly UNsecured debt repayments....... 217
Amount left after debt repayments....... 462.5 Do you actually have this amount left? I'm guessing not...

Personal Balance Sheet Summary
Total assets (things you own)........... 335,500
Total HP & Secured debt................. -162,000
Total Unsecured debt.................... -9,400
Net Assets.............................. 164,100

Reproduced on Moneysavingexpert with permission, using other browser.[/i]

I've edited to put in roughly what I think my interest payments are on the CC and loan.

OK - first off go and double check those interest rates - you need to get a handle on this.
Assuming that you don't have that surplus left at the end of the month, the next thing to do is to track down where it's disappearing to. As things stand at the moment though it's an indicator that your budget isn't quite working as you think it should. A spending diary for the next month is probably a good idea as you say. Track down those missing £'s.

Be careful about noting things on the SOA that are set aside monthly and then not setting the money aside, also. You might find it works for you to set up some offshoot savings accounts off your main current account and put aside your car maintenance money, emergency fund etc into those.

My suggestion would be - track down your surplus, and prioritise throwing everything at that overdraft to get it gone ASAP. In the meantime have you checked your credit file? Do you stand a chance of getting a 0% balance transfer card? If so, you can transfer the CC onto that, giving you some breathing space.

theoretica

I agree with other posters that you are looking for outside solutions - (and changing your current loan at 6.9% for one at 8.9% is not a good solution!) you need to solve this by looking at your own spending. Your best option is finding that nearly £500 spare and paying off the debt quite fast!

Five months should get rid of your overdraft - get used to living in the black, and another five to clear the credit card too - then plenty of time to pay off the loan before you plan to move.

sourcrates

I'll add my too pennath in that the consolidation route is really a no no.

It's just a delaying tactic, rather than a solution.

A bit of fiddling with your budget and you can easily sort this out without resorting to further borrowing.