Tidying up the mess 8 July 2018 at 8:39AM edited 9 July 2018 at 6:37AM in Debt free diaries 685 replies 66.2K views

BabyStepper

I am trying to find ways to get me and OH out of the debt mess we are in. I became self-employed a few months ago and my credit card providers wrote to me to reduce my credit limit to just above what I owe. This was worrying and I'm now thinking they might call in those debts at any moment. Me and OH then sat down for the first time to list everything we owe and figure out what to do about it. We are in it together to sort it out but this is where we stand just now.

Hitachi loan £844 0%
Lloyds cc £1,311.39 mostly 0 % but 403.68 @17.9%
Overdraft £2,000 0%
Santander cc £3,367.30 0%
Halifax cc £3,242.65 0%
Barclaycard cc £4,614.38 mostly 0% but £838.75 @ 16.9%
MBNA cc £5,213.34 0%
Student loans (1) £8,160 (currently deferred)
Student loans (2) £27,190 (payment taken straight from wage)

Total £55,943.06

We spent £10k we didn't have when we bought our house, front and back doors, new windows and damp treatment. £3k is still to be paid off after our wedding 2.5 years ago. The Hitachi loan is carpets and lino. Student loans have never been on the radar as something to be paid off but they are now. Other than that we have around £6-7k that we both just maintained on cards, not to buy anything in particular, just spending and forgetting about it.

I need a coffee after writing all that.

BabyStepper

We decided to follow the Dave Ramsey plan as we both find him motivating. We have £450 in an emergency fund that we hope to fill up to £800 this month. This is the currency converted baby step 1. Then in baby step 2 we will pay off the debts from smallest to largest to try and stay motivated. The Hitachi loan has a minimum payment of £42.20 and we plan to overpay it once the emergency fund is ready. Once that is gone we will use that payment towards the Lloyds credit card, along with any other cash we can throw at it.

From what I have worked out from this website Martin Lewis recommends highest interest debts going first. I have been thinking about that since I found this site, but motivation really is a problem for us so we are sticking with our current plan to try and pay off at least one debt quite quickly.

Our minimum payments are £287.13 per month. OH earns £1850 per month and my wage is variable at the minute, I made £940 last month but the potential is for much more. We can cover all of our bills but the amount leftover changes depending on my wage. I won't post an soa until I am done reviewing everything. We got our life insurance reduced by £15 per month this week so that was good.

The biggest challenge is to try and cut back spending to the absolute minimum. This has been easy some weeks, harder other weeks, but we are trying very hard.

I guess I am really here to just try and keep motivated. This is going to be a long haul. I am also going to keep reading diaries, they are so good, to help me stay on track.

doingitanyway

Good luck on your journey. Keep on keeping on and you will get there if you want it enough

BabyStepper

Thank you, doingitanyway. I'm going to need to learn some persistence to just keep on going. I'm hoping once the emergency fund is built up that'll spur me on. Small goals.

OH is away for one night this week on a work trip. Travel and accomodation are paid for but other expenses need to be paid upfront and then claimed back. We've saved for this but that cash would look better in the emergency fund.

I have a meeting tomorrow for a potential new client, fingers crossed that will work out. There is also someone else interested in me doing some work for them so we'll see how that goes. If only it could get moving faster.

I transferred some cash yesterday to cover bills and the amount hasn't appeared in my account. I need to get on the phone to both banks involved and find out where my money is. I could really do without the hassle on a Monday morning.

Otherwise it's a quiet week. Trying to live on no money can get a bit dull. I might need to get creative with things to do. Any suggestions?

Kitten868

Morning!
Well done on facing it. I'm just curious about the student loans: which type are they? Do they have to be paid? I'm guessing the first one does and the second doesn't by the amounts. Martin Lewis does a page on this site about advice regarding all the different types of student loans which is worth a read.
It's early days on the business - you're going great x

enthusiasticsaver

I wouldn't worry about the student loans but generally the advice is repay the most expensive first. Overdrafts are repayable on demand too so that should be a debt tackled early. I know Dave Ramsey's advice is smallest first so if that works for you then fine.

Repaying debt can be a slog but there are lots of free things you can do depending on where you live and what your interests are. Have you got stuff you can sell?

Self employment and repaying debt is a challenge because income is unpredictable. Are you allowing for overheads like tax, business costs etc?

BabyStepper

Hello Kitten868 and enthusiasticsaver. Thanks for posting and for your helpful comments.

You are right that my overdraft could also be called in at any moment. This is on the account my wage goes into so they will see the reduction. I have been confused about what debts to pay off first, Hitachi are unlikely to care as long as I keep making payments, but I'm trying to just follow Dave R's instructions otherwise I don't know where to start.

My student loans will be deferred for as long as possible and the total shown is the amount I would have to pay if I had no more deferrals and had to pay up until my 50th birthday. My husband's loans are paid out of his wage every month. That's £60 to reduce the debt by £10. This is the worst debt for interest but also if he was to lose his job then there would be no payments so we will deal with this debt last. I read Martin's thoughts about student loans but we really want the peace of mind of having them gone. Once we added everything up and had it all out in the open it seems there is no going back.

I have my wedding dress to sell and my husband has a bike. They are both being advertised now. We are not hoarders though so not much else to sell.

The business accounts are going well. I'm not very good at predicting my expenses yet, mostly travel as I'm selling my time and skills so not many overheads but I could be better organised with this.

I had a small bonus today. I was overpaid in my final wage for my job. I tucked the excess away in a savings account and let them know straight away. No word from them for ages and then I received a letter today asking for £125 less than I had planned for. That's going straight to the emergency fund.

Regarding free things to do, we are taking long walks on the beach and doing a lot of gardening. I do miss meals out and drinks with friends. We have been on baby step 1 for about 8 weeks now so not doing any of that but in the long term I need to work out cheaper ways to socialise.

Thanks again for your comments. I really need to get to bed now before the sun comes up.

Savertobe

Hi

Although I do understand the Dave Ramsey thing and if you had the odd small debt £50 for a catalogue debt for example then this would be good to get out of the way. However, looking at your debts it seems the two interest bearing CCs are a must to get rid of. If it were me I would make sure something goes in the EF and something off the OD each month and then tackle those two cards - one at a time.

I created a simple spreadsheet showing how the debt would come down - this is also motivating. My understanding is that CC providers reduce the debt on the interest free elements first so it can be difficult to pay them off. The EF whilst important can be built up slowly rather than as an absolute priority.

Hope this helps.

One-step-at-a-time

Savertobe wrote: »

Hi
I created a simple spreadsheet showing how the debt would come down - this is also motivating. My understanding is that CC providers reduce the debt on the interest free elements first so it can be difficult to pay them off. The EF whilst important can be built up slowly rather than as an absolute priority.
Hope this helps.

This isn't always the case - check the monthly statement from the individual lender.

Taking one of mine as an example:
"We use your payments to clear any overdue amounts before we apply them to your latest minimum payment.
We will reduce the amount you owe in the following order:
· any overdue amounts from previous statements;then
· the remaining balance on your statement;then
· any recent transactions not yet shown on your statement.
We use your payments to pay off balances charged at the highest interest rate first and so on down to balances with the lowest interest rates. This means the more expensive balances are always paid off first.If there is more than one type of balance at the same interest rate, they are paid off in the following order: cash transactions, purchases, balance transfers and money transfers, and then default charges (plus any interest or charges incurred as a result of those balances). For each type of balance, your payments will pay off the oldest balance (and related fees, charges or insurance) first."

Lydia42

Hi
Well done facing up to the debt. I've recently done the same and started a diary. I've started following Dave Ramsey and reading the diaries and threads on here to stay motivated. It's good to know you are not alone and that it is possible to get out of this mess.

We've managed to get most of our debts onto 0%, so we are basing the order we snowball on when the 0% offers come to an end. The first one ends 1st Nov 2018, so that is the one we are over-paying, whilst only paying minimum on the others.
I've created my own spreadsheet to help me keep a track of our progress and also added tabs to allow us to do a zero based budget.
Good luck, i'll be following your diary :-)

BabyStepper

Hello savertobe and one-step-at-a-time. Thank you for taking the time to comment. My credit card statements clearly say that the debt will be paid off highest to lowest interest rate. The barclaycard has the hightest minimum payment of all our credit cards at just over £100 monthly. Within a year, even with the interest being added, the interest accruing part of this debt will be paid off. I can manage with that.

I understand Martin's approach is about paying off the debt as fast as you can while paying as little interest as you can. I have used a technique something like this for years and it has not stopped me from accruing debt, paying some off, accruing more, paying some more off, and the cycle continued like that. I somehow felt that debt was a helpful and ordinary part of everyday life. I now believe that this is not true and me and my husband want to change our habits, our behaviour and the way we live our lives.

Dave R's approach is about behaviour change and that suits us well. I don't want to live with any kind of debt any more. None. Me and my husband got student loans when we were 18 and have never been out of debt since. The only way to live without credit cards is to stop using them and start living within our means immediately. So we are doing that. We cut our cards up (and kept the bits for when we need to phone the banks and cancel them.) We decided never to use any kind of credit for anything ever again. The emergency fund is a priority for when those annoying things crop up that we are not ready for. If we had ever had £800 in the bank before we probably would have booked a holiday with it. But we need it to sit there and be ready because things happen.

I understand this is not the most efficient way to clear the debt but there is more at stake here than just getting rid of the credit card balances. We are trying to change the way we think and it is really difficult. And it makes us weird in this world. My family thinks we have lost the plot. My husband's family are 100% behind us. It's nice to have the support.

I hope that explains what we are up to.