How would you approach this? DMP or not?

don78

Hello everyone,
We could do with a bit of advice of our current financial situation.

We are currently in a large amount of debt, in excess of 60K. The debt has built up over the last decade, however it has doubled in the last 5 years due to my wife being on maternity two times, and then working part time due to the age our young children.

We are both teachers and I have a senior role. My wife goes back to full time teaching in September so we will finally be in a good position to start making a real debt in these debts. The debts are currently spread across credit cards and loans. I have tried to be as savvy as possible when it come to interest and a lot of the debt is on low rates and 0% - but no all of it. Our total interest costs are currently around £250 a month. Whilst I would prefer this to be zerio, we have kind of accepted that this is not terrible based on the large amount of debt that we have. We are currently managing to pay £1500 towards the debts, £1250 of which comes off the balance. We haven't added to the debt or used any credit for 6 months,

So here is the dilemna..
Towards the end of this year, a lot of our promotional offers will end. If we are not able to acquire new offers then our interest will increase to an eye watering £550 per month. :eek:

Earlier this year we had a difficult time with some family illnesses and as a result we made a few late payments. This will obviously affect our ability to get new 0% offers, especially as our debt level is so high. We have no CCJ's or defaults or anything like that.

Despite this, we WILL be able to afford the payments as my wife's take home salary will be increasing by over £1000 per month, however it;s annoying to think that we may have to pay so much interest.

The only way to avoid this would be to set up a DMP, however we are both concerned that this will trash our credit rating. Neither of us want any more unsecured borrowing, however we would like to think that we could move house, or get a better mortgage deal in a few years time. I have used the stepchange debt remedy tool and that suggested that we didn't need a DMP as we can afford our contractual payments

What would you do? soldier on and apply for 0% offers next year, or go for the DMP, freeze interest now but potentially reduce options for the future?

sourcrates

Hi,


Its a difficult one, you are, or will be earning good money between you, the payments are affordable, but the interest looks like it will rocket shortly.


To me it looks like short term pain, for long term gain, take the hit on the interest, and throw everything you can at the debts.


When you have such a good income, and good prospects of repaying what you have borrowed, you do not really want to be going into debt management unless its absolutely necessary, in your case, from what you have told us, i don`t think you need it, not as yet anyway.


What you must ask yourselves is how you managed to accrue 60k of debt to begin with, good budgeting is a must at any time really, even more so with that kind of debt to service, as this balance drops, do not be tempted to fall back on your old vices.

lindens

Slightly an aside - get DDs set up NOW to make minimum payments on all credit cards, set for the day after you get paid. Then no family emergency can make this happen again

don78

sourcrates wrote: »

Hi,


Its a difficult one, you are, or will be earning good money between you, the payments are affordable, but the interest looks like it will rocket shortly.


To me it looks like short term pain, for long term gain, take the hit on the interest, and throw everything you can at the debts.


When you have such a good income, and good prospects of repaying what you have borrowed, you do not really want to be going into debt management unless its absolutely necessary, in your case, from what you have told us, i don`t think you need it, not as yet anyway.


What you must ask yourselves is how you managed to accrue 60k of debt to begin with, good budgeting is a must at any time really, even more so with that kind of debt to service, as this balance drops, do not be tempted to fall back on your old vices.

Thanks for responding

We built up some debt when we were younger and childless by going on holidays, buying new cars etc. We also took on some debt for our wedding. We were definitely in excess of 30K debt prior to having kids. the remaining debt has built up over 5 years or so when we have used CC's to subsidise reduced income and also do some repairs to our house. The scary thing is, it was relatively easy to build up 60K of debt without reallising the extent of it. It wasn't until we sat down and looked at the numbers that we realised just how much we owed. Based on my experiences, I reckon that loads of people must not have any idea how much they actually owe!

Dobbibill

Complete a SOA (even if it's only to view yourselves). Cut back on everything and throw every penny at the debt. Sell things you no longer need/use to generate more pennies for the debt.

A budget is a must for you going forward.

I wish you both all the best.

mark55man

Good luck and do as earlier posters suggested and put up an SOA so you are aware of where every £££ is going.

You don't mention a mortgage - some basic information on that would help. You could take the sting out of the interest hike by consolidating loans (not normally a good idea, but you seem to have both the increase in income and the LBM to cope). Sainsburys offer 2.8% at hte moment for 3-5 years - if you think your credit rating is up to that - they do cater for CC transfers but you may be lucky to maybe lock 15-20% away at reduced rates - saving £100 per month to snowball

Young kids really dont notice the cost of things so don't overspend on them - especially as you will have 10 weeks holiday to fill. You need to find some free or very cheap activities - hiking (but no coffee shops) or just parks. You have to really understand that you were spending too much and its not about cutting back until you have paid it off, its about redesigning your lifestyle so you can sustain it.

Finally suggest you really make a stab at being more frugal in the kitchen - I know its a cliche that as modern minded teachers you don't like, but one of you has to take responsibility for eating cheaply but well and relying on take out or convenience meals

Plus do you need two cars can you downsize or remove one of them to knock a bit off the debt

worriedDan

Personally I would stick at it, at least for 6 months. Chances are some of your current credit card lenders will offer you balance transfer offers as your balances reduce. I have shifted a lot of my debt around this year without having to apply for new products. I definitely don't think that you should enter debt management if you can avoid it.

good luck

indesisiv

Can you prioritise a card with minimal balance?
Hopefully clear that and then look at balance transfers to that card? Then hopefully clear a different one and balance transfer to that one?

That way you can hopefully minimise the interest accruing.

National_Debtline

Hi Don


I agree posting a SOA is a really good idea, it gives us a better idea of your financial situation. You can find one here http://www.stoozing.com/calculator/soa.php. Hit the format for MSE button before posting back on the board.


A DMP won't be an option if your debts are affordable. There's no reason a creditor will reduce payments or freeze interest if they can see you're not having a problem paying. So unless you have been spending much less than you need to on essential outgoings, like your food shopping, you're better to look at other options.


With the increase in your partner's income you'll have more money to throw at the debts. Work out which debts are costing you most and target those first, bearing in mind when any 0% offers are coming to come to an end. The hike in interest rates will usually be really high.


Best wishes


Susie
@natdebtline

don78

Here is my SOA, in all of it's horrid glory! This is based on our earning from September onwards as opposed to the next 2 months. We actually owe a little less than I thought!

I have also included the interest rates to what they will be when they all revert to standard rate between now and October. I reckon that I will be paying around £585 per month in interest.

I would welcome any comments on this. I really need to know that we can do this!

Household Information[/b]
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 2

Monthly Income Details
Monthly income after tax................ 3250
Partners monthly income after tax....... 1805
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 5055

Monthly Expense Details
Mortgage................................ 524
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 110
Electricity............................. 40
Gas..................................... 80
Oil..................................... 0
Water rates............................. 34
Telephone (land line)................... 15
Mobile phone............................ 60
TV Licence.............................. 12.54
Satellite/Cable TV...................... 25
Internet Services....................... 0
Groceries etc. ......................... 250
Clothing................................ 20
Petrol/diesel........................... 160
Road tax................................ 5
Car Insurance........................... 25
Car maintenance (including MOT)......... 30
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 120
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 20
Contents insurance...................... 15
Life assurance ......................... 35
Other insurance......................... 0
Presents (birthday, christmas etc)...... 50
Haircuts................................ 15
Entertainment........................... 150
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 1795.54


Assets
Cash.................................... 0
House value (Gross)..................... 210000
Shares and bonds........................ 0
Car(s).................................. 5000
Other assets............................ 0
Total Assets............................ 215000


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 72000....(524)......1.8
Total secured & HP debts...... 72000.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
barclaycard....................10000.....265.......17.9
tesco CC.......................4000......125.......19.9
bcard 2........................4400......101.......6.9
loan 2.........................8500......160.......7.9
halifax 2......................7000......80........4.9
halifax 1......................4800......48........0
loan...........................6000......248.6.....9.9
mbna...........................5000......198.......22.9
creation 2.....................4000......90........19.9
creation 1.....................5000......145.......16.9
Total unsecured debts..........58700.....1460.6....-


Monthly Budget Summary
Total monthly income.................... 5,055
Expenses (including HP & secured debts). 1,795.54
Available for debt repayments........... 3,259.46
Monthly UNsecured debt repayments....... 1,460.6
Amount left after debt repayments....... 1,798.86

Personal Balance Sheet Summary
Total assets (things you own)........... 215,000
Total HP & Secured debt................. -72,000
Total Unsecured debt.................... -58,700
Net Assets.............................. 84,300

anna_1977

how about you throw another £1500 a month at the debts starting with the highest APR one?