Advice please on where to start

Hopeless_Case

We're in a bit of a mess after a few rough years - we run our own business which complicates things as our income isn't fixed, we each have a low basic wage and then take what we need/can as dividend or repayment of directors loan. We've had a few issues, and both had depression (and menopause in my case) and we've found ourselves in our 50s having just remortgaged over a 25 year term. We've got a fixed rate for 5 years with the idea that we have 5 years to regroup, and then see where we are, maybe downsize or remortgage again if possible.

We borrowed £11,500 extra, the most we could get, as we do need a bit of a fund to help with cash flow at work, or a cushion in case we don't have money to take out to live on, and we have a large overdraft plus about £15,000 of credit card debt, and I'm not sure of the best thing to do with the money.

We are going to try and do a balance transfer of at least some of the credit card debt, to get zero rate interest and work on paying it off (we are paying £399 across 3 cards, with a total balance of about £15,000, and we could add a bit more to this, so I think we could make a good dent on it if we do get a zero rate transfer) so we've thinking maybe to not use any of the capital paying that off

We have an agreed overdraft limit of £4,400 from First Direct, and basically, whenever it hits that, I've been transferring a bit across from the company, but we never actually reduce it, so I'm wondering if rather than put the money into a savings account, we should use some of it to clear the overdraft, and then have the overdraft as the buffer for the company - my issues with this are: a) we've borrowed from the mortgage to pay it off before and we've just run it up again, which is partly how we've got in the mess we are, and if that happened, we'd have lost our cash flow buffer too
b) I'm not sure if it would be reduced or removed if we stopped using it, and although I can really see that that would be just what we need in one sense, it would be a disaster if we used our capital, lost the overdraft and then had a cash flow crisis at work.

I'm wondering if we should do something else with the overdraft, like getting it converted to a loan and then requested that the overdraft limit was drastically reduced (to maybe £100 as a small cushion).


I've got a Virgin ISA and my aim was to put the money in that but I'm just not sure what to do about the overdraft.

We've never had problems getting credit or missed a payment but I'm worried if we suddenly start applying for credit card transfers and loans, we could get refused it could mess up our rating

My other question is that someone was talking to us about either making 2 mortgage payments a month or paying every 2 weeks, (which means making the equivalent of 13 payments a year), with the aim of saving loads of interest and reducing the term. I don't think the second option would be a good idea, as if we are going to pay an extra £690 in the year, it would be better going on the overdraft or a credit card, but I'm wondering if the 2 payments a month option really does help.

We owe £164,965 and our house is worth £280,000, like I say fixed at a low rate for 5 years, but as things stand carrying on until we're well into our 70s. We have a 4/5 bed detached so we do have scope to downsize but would prefer not to (unless it was to raise cash to help our retirement)

I'm really confused and feel like we have a last chance to get straight, so I want to get it right this time!

tlc678910

Hi
Do you earn more running your business than you would if you got an ordinary job? An ordinary job would allow you to budget and avoid these cash flow crises but do the good times in your business make it worthwhile to continue?
Tlc

Hopeless_Case

That bit is not negotiable with my OH, it's his business and he wants to run his own business plus he's convinced that he wouldn't be able to get anything now as he's been out of the market so long. That's been part of my problem, as I'm not really suited to the stresses and uncertainties and would prefer a lower wage but fixed and secure (as secure as it can be nowadays anyway!) We're working on me being able to get out and find something else but at the moment it would cost more to replace me than I'd earn, so I'm living with it as best I can!
But it is actually a good business, we do get a decent living from it, but we got into a vicious circle of having to take ever more money out to repay our growing mortgage etc which meant losing any cushion in the company, and then ending up drawing down a bit more on the mortgage to sub the company and then needing to take more out each month to service the ever growing mortgage etc.

Hopeless_Case

Having slept on this, I think it's a no brainer to use some of the money to pay off the overdraft, and invest the rest. This will save about £43 a month interest which we can pay on a credit card each month (or save if we feel we need to) - First Direct seem to review the overdraft limit at the start of each year so we have a few months to see how we go and adjust to being much more careful in budgeting and keeping track of spending

Writing it all down here has really helped crystallise my thoughts!

I'd already made headway on my Visa card, I raised a few hundred pounds last year by selling old books and DVDs online, and using my TopCashBack payouts, so it's about £900 now and I'm paying it off at £100 a month, but my OH has been running his up and he owes £14,000. I'm not sure how much of these we could get transferred to a 0% card, but if I can get mine paid off, the £100 (or £143 if I redirect the overdraft charges to that) would help reduce them, as the others are paid off on minimum amount DD ATM

enjoyyourshoes

Your question was-advice on where to start?

You should analyse your business performance:-

year on year growth/decline

pricing structure (do abc, margin and competitor analysis)

payment terms to customers and how strategically you manage debtors.

Analyse cost of goods & Margin (do you stock take & act of surplus/deficit, theoretical Vs actual margin?)

The core of the issues are win your business and once you are in the position to manage these dynamically (its not a once and for all activity) you should be clearer.

This is quite a different answer to the question in your post which was I think what should I do with the extra cash generated from equity release.

EssexHebridean

The fact that you have essentially taken out a business loan secured on your home worries me a lot - this is not generally a great idea. Ditto taking on a new 25 year mortgage term in your 50's - although I get the feeling that's not something you're greatly comfortable with either?

I agree with the advice about analysing the business performance - although regardless of the outcome there it sounds as though the business in continuing as is because of your OH's view on things?

Definitely get the OD paid off - and then don't be tempted back into using it again. The problem with OD's is that they are a "dangerous" debt in that the bank can recall an OD at any time with no notice. To be totally honest with the balance of the money I'd put aside a suitable amount into an emergency fund (but for actual emergencies - not "oh we're a bit short this month" living expenses) and, quite honestly, I'd then pay the rest of whatever other debt you have. with the uncertainty over the income, I don't believe you can afford to be paying anything more off debt than you absolutely have to.

I'd also suggest you have a thorough scrutiny of your current outgoings with a view to cutting back on anything non-essential.

another_casualty

The things I see here : You are under a lot of stress obviously because of your financial situation , but also it seems that you seem to be stuck in this business trying to please your other half . That doesn't bode well imho. In order to pay bills , you should be able to like the job you are doing , which makes you then feel confident about paying your mortgage and bills for at least a few years with ltd risk .
What I see here, is potential illness possible breakdown in the future unless this is resolved . Unhappy job can lead to stress ,which could lead to ill health if you don't address these issues as soon as you can.

If you can clear the overdraft and keep out of it, then that's a weight off of your shoulders imho as if something does go wrong and your wages don't cover it then that's disaster also.

You've remortgaged before and it has got you nowhere except a larger mortgage . I've done it . It ends in tears and should be avoided at all cost. A false sense of security putting your home at risk .
The thing to remember here is that , affordability is the new term which means that even if ou did want to remortgage in five years time etc you would probably be refused.
I would say the best thing is to do a stement of affairs and you will get more expert help here .

Sorry if I sound a bit dramatic , but I wish you well in your journey

John-K_3

One thing that you need to be clear about is your profitability (or losses), how this is changing over time, and what the prospects are for ever making a success.

You sound as though you are getting into increasing debt, and tinkering around if that is the case is useless, you are only delaying disaster by a short while, not making it less inevitable.

You say that you are making a decent living from the company, but that is clearly not true, you are borrowing to keep it afloat.

Hopeless_Case

Thanks for all of the replies - potted history, we had someone who managed to manipulate his way into the company and made us very miserable, so in the end we acted emotionally rather than with a cool financial head and paid him off out of our own money, one of the main reason why after 20+ years in our house, we're looking at remortgaging with a big mortgage and not at paying the mortgage off. He then stole our data base and after the agreed period, started poaching our clients. He actually only took very few, who were all the less pleasant ones who tried to argue you out of any profit and gave the most grief, but it totally destabilised us as we took it was too personally (we'd seen him as one of our best friends, and also the period of every time the phone rang we were dreading it being another customer saying they were going to him was awful), and let the business suffer. We did try and get the police involved but they weren't really interested, and basically said it was civil. We do have enough evidence to sue to get our settlement back but we've decided to draw a line under it because of our health and because the business suffers as it just takes us over, and also because as far as we know he hasn't really picked up any new clients other than the ones he took from us, and I don't suppose there's a lot of the money left as he must have been living on it since he left, and he doesn't have any other assets.

We recently had our accounts made up and we actually made one of our biggest profits in our last financial year, so we are regrouping and recovering from all of this, and we do have a healthy business, and we're trying to be more relaxed about it and I'm trying to document what I do (which is basically everything but the technical stuff!) and work out what stresses me and what doesn't, and see about handing it over to someone else, so it is worth pursuing.

We've let our finances become far too intermingled with those of work, and we've agreed to stop this and to tackle any issues with cash flow like any other business would, and we're going to just keep a couple of thousand for us for a rainy day/emergency fund, and use the rest to pay off debts. So we have £9,500 to tackle £15,000 of credit card debit and £4,400 of overdraft debt, and then try and transfer whatever is left of the credit card debt to a zero balance card and then hopefully get that cleared in maybe a couple of years (we need to fine tune this when we see what deal we can get on balance transfer etc, but as a back-of-envelope figure, £10,000 over 24 months is £416.67, and we're paying £442 at the moment on cards and overdraft fees, so it should be possible even without a zero rate transfer, and we might be able to do it in less), and then all being well have 3 years after that to overpay on the mortgage so that we're in a better position to remortgage at the end of the fixed rate, hopefully on a shorter term, and if that isn't possible in late-ish 50s, at least we would owe a bit less when it reverts to the standard rate