Clearing £26k of debt plan

Ben_184

Hey everyone,

I'm a young guy (24 years old) and I've managed to make a lot of bad life decisions which have got me to where I am now. It started at Uni when I was about 21, and took out a £10k loan (23% APR) to help with living costs in final year because I was failing exams and wanted to not have to work 30 hours a week to support myself. I also had £4k of student overdrafts which are still interest free, though not for long

I then obtained credit cards once I started employment full time and spent about £4k on holidays and other rubbish, as well as a £7k interest free loan from my employer which disappeared fairly quickly. There's about 2500 left on this, but I'm not concerned about that at the moment as it's not on my credit file, and will be paid off through PAYE in 2 years

I then went through a bad break up with an ex, and ended up buying a flashy car on credit for £11k.

All in all, I'm up to about £26k of debt right now. This however is offset by the car (£11k value), as well as £7500 which is a combination of my pay for February, some expenses from work which I've yet to claim, and some money I've moved around on cards through 0% balance/money transfers



The plan for now is to use the £7500 to pay down the loan, phone and overdrafts. If any extra is needed, that will have to come out of March's pay slip. This will leave me with about £18k to pay off. Once I sell the car, this will be around £7k.

Right now the debt is really consuming me - I can't have a nice meal out with my partner without worrying about price/going for a Tastecard deal etc. I can't justify buying myself new clothes or treating myself. Basically any spending makes me feel guilty, and I hate it.

I want to clear the debt as soon as I can so that I can move in with my partner. Once the car is gone, commitments will be small enough to leave me with £1000 a month to live off of - £600 more than at the moment!

So starting at the point of having sold the car and having £1,000 a month as 'disposable' - how much of this do people recommend that I use to pay down what I owe? What's a good balance of being aggressive with reducing what's owed, but also being able to enjoy myself and have good times with my partner? I'd really appreciate some advice, as well as perhaps some inspiration to keep our dating life active whilst reducing the costs!

Here's a budget thing I've seen other people do. I've got a company car through work which is paid for through my PAYE, and is fully insured and maintained. I estimate that most of my fuel cost will be covered by the business mileage allowance. All other travel costs are expensed:

Summary

Monthly Budget Summary Amount(£)
Total monthly income 1,390
Monthly expenses (incl. HP & secured loans) 490
Available for debt repayments 900
UNsecured debt repayments 507
Amount left after debt repayments 393
Personal Balance Sheet Summary Amount(£)
Total Assets (things you own) 17,000
Total Secured & HP Debt -0
Total Unsecured Debt -25,600
Net Assets -8,600

Income, Expense, Debt & Asset Details

Income Amount(£)
Monthly income after tax 1390
Total monthly income 1390
Expenses Amount(£)
Mobile phone 35
Petrol/diesel 50
Haircuts 5
Entertainment 200
Total monthly expenses 490

Unsecured Debt Description Debt(£) Monthly(£) APR(%)
CC1 9500 225 0
CC2 3500 35 0
CC3 2500 25 0
Phone 400 20 15
Overdrafts 3500 0 0
Loan 3500 175 23
CC4 2700 27 0
Unsecured Debt totals 25600 507 -

Asset Description Value (£)
Cash 6000
Car(s) 11000
Total Assets 17000

JoJoC

Good luck Ben - you sound like you have a plan and some goals in mind that will hopefully help to drive you towards becoming debt free. I'm sure someone will come along to offer you proper advice, but I'd suggest that you make sure that you're not going so frugal that you start to resent paying off debt and end up going off the rails. As you say, you need to have a bit of fun and spend time with your partner too.

Work out a budget that you'd be happy with but still paying off a good chunk of your debt and see how long that will realistically take you to pay off the debt and take it from there. I'm always tweaking my budget, cutting back and adding bits here and there to fit in with my life so that it's not just years of debt paying and no fun.

Good luck!

fourthtimelucky

Good luck with your plan, it seems to make sense, Personally my approach is to be moderately aggressive but don't leave yourself with no fun otherwise you are more likely to not see things through.

It is good that you've picked things up at a relatively young age. My story is similar but with less to show yet I muddled through 15 years from finishing Uni to finally getting my head together. My diary started in my late 30s but I'm finally on track.

Good luck.

Bird.Heart.Mouse

Hi Ben,

Well done for acknowledging your debts! It's painful to begin with but clarity of mind (has or will) come with knowing exactly where you stand financially / whats left to pay etc. I have a similar origin story to your own - student life, low/now income, very poor money choices and quickly escalating debts! Using your assets will be a big help, me and many other MoneySavers have nothing to show for their spending!

Ben_184 wrote: »

Right now the debt is really consuming me - I can't have a nice meal out with my partner without worrying about price/going for a Tastecard deal etc. I can't justify buying myself new clothes or treating myself. Basically any spending makes me feel guilty, and I hate it.

^ Totally understandable, getting back to a positive position is as much a mental battle as a financial one, but remember hard work deserves reward. You absolutely need to reward yourself by taking a break (in a financially savvy way for guilt-free bonus points). I have found that putting money each month as a 'leisure fund' means that you know exactly what can be spent without a) impacting the all important budget and b) feeling guilty when it's gone!

I see you have 'Entertainment' down as a £200 p/m expense - what does that cover?

Bird x

Ben_184

Bird.Heart.Mouse wrote: »

Hi Ben,

[deleted some text to keep brief]

I see you have 'Entertainment' down as a £200 p/m expense - what does that cover?

Bird x

I guess it's like you suggested, a general fund for going out and things. It's a shame it's that low. I'm earning £1500 a month after tax and living at home, yet have hardly anything spare each month!

Well, things have taken a turn for the better. The car is now sold, and for more than I anticipated! So I will get around to re-posting my position once I've decided where the funds will be allocated to.

I'm thinking of clearing everything which has a high minimum payment to debt ratio (e.g. barclaycard is 2.25% of balance, whereas others are 1% of balance) - this will reduce the commitment, and hopefully the perceived burden!

I'm also going to up the minumum payments on everything else - I'm going to budget £200 per month to go directly to repaying various cards. I think there's going to be 4 remaining, so will be £50 to each.

The monthly reduction in commitment from selling the car is as follows:

Loan: £173
Barclaycard: £215
Employer Loan: £142
Phone: £20
Total Saving: £550 a month less committed

This will leave me sitting on a £4k cash pot, with about £8,500 outstanding on cc's. I am anticipating that after 'essential' commitments (rent, phone bill, gym etc), I should have £1,000 a month left over. So I shall aim to put half of that aside each month

moneyfacts

Ben, with your attitude you will soon be debt free and sounds like you won't be making these mistakes again.

I took loads of loans and credit cards out during uni, think mine totalled over £25k. Like you, I hated it and certainly didn't try to justify it as a good thing.

I now save/invest over 50% of my income. My partner and I are mortgage free by 40. I'm not bragging, just pointing out that you can change your attitude to money completely and put foolish spending habits behind you.

Good luck

[Deleted User]

Good luck on your journey Ben xx

Ben_184

Moneyfacts, What was your 'plan' to get on top of everything?

I'm looking to move out and the only realistic way of doing it is via shared ownership. I can find somewhere with a commitment of about £800 a month, of which half would be going towards repaying mortgage. I'd struggle to get anywhere on the rental market below £900 which is suitable, and even then the full £900 is going into someone else's retirement fund! Which I refuse to do...

Part of moving out, is deciding how much of the car money to allocated to debt repayment, and how much towards a deposit on a share. At the moment I'm thinking of keeping £4k aside towards the deposit - what are your thoughts on this?

enthusiasticsaver

Good that you managed to sell the car and the debt will stand at £8500. You seem to have a good cash buffer so I would say paying £500 off the debt every month sounds sensible and a good balance giving you £500 to live off. Ideally you want to aim to clear the debt completely so every penny you earn is either saved for the future (your own home, a new car, holiday) or spent on day to day living. Servicing debt is just depressing IMHO.

jackieblack

Your budget/expenses doesn't include anything for rent/board (do you live with your patents? don't you pay anything?) or food (I presume you eat?)
If you don't include absolutely all actual expenses in your budget it'll never work because there'll always be additional expenditure you haven't planned for.

Ben_184

jackieblack wrote: »

Your budget/expenses doesn't include anything for rent/board (do you live with your patents? don't you pay anything?) or food (I presume you eat?)
If you don't include absolutely all actual expenses in your budget it'll never work because there'll always be additional expenditure you haven't planned for.

Apologies if I didn't make clear in original post; I am still living at home so have no committed expenditure for rent or food right now

Unexpected is definitely a tricky one, so I've put the £200 entertainment in there too to try and cover some of that