Advice before I go too far

DFW1130

Hi all

Just want somewhere to rant, gather my thoughts and hopefully get some advice. I rent a flat with my partner in London. We both work, I earn approx 2k every month after tax, and my partner’s income is variable but currently works full time hours bringing in 1.5k per month average after tax.

I have a number of debts which are fairly low (all subjective I suppose), but are getting to me a little bit and I want to get them cleared so I don’t dig this hole any further. I’ve had a bit of an impulse problem with spending and since getting my 0% cards have been suckered in (as I imagine the banks want you to be!). I need to change my habits and spend on things I want only when I can afford to, once I have saved up the money, rather than getting burned with debt. Some of these debts also came from struggling times during the year.

I owe the following on cards:

1. Lloyd’s £4100 0% until July 2020, currently paying £100 per month
2. Barclaycard £402.18 0% until October 2019, currently paying £45 per month
3. HSBC £585 0% overdraft until June 2019, paying £100 per month
4. Very £99 0% until June 2019

I get an annual bonus from work (last year was £3.5k, but still yet to see this year). I’ve been in the mindset during the last year that “I’ll pay my cards down once I get my bonus”, but it’s not necessarily guaranteed to be a certain amount so I need to be smarter about this in the future. I’d also like to try and save more but clearing the debts is more of a priority for me at this time.

My plan is as follows:

• Continue paying £100 per month onto the HSBC overdraft (4 months: February, March, April, May) and pay £185 from my bonus in February to clear it in time. This will free up £100 per month from June.
• Continue paying £45 per month for next 9 months to Barclaycard, which will clear the card by October 2019 before the promotional rate ends
• Clear the very balance with £99 from my bonus
• For Lloyds debt, at £100 you can see that the debt will not be cleared by July 2020. I will continue paying £100 per month onto this card until June (Feb, March, April, May, June) leaving the debt at £3600. If it is possible, I would like to pay £1200 from my bonus money (again, dependent on how much I receive), to bring this debt to £2400. I will then use the freed up £100 per month from HSBC payments to pay £200 per month for 12 months starting July 2019, clearing the debt by July 2020.
• (If this is not possible, I will pay £200 in July, August, September, bringing the debt to £3000. Then use the freed up £45 per month from Barclaycard to continue payments at £245pm for 10 months. The debt by July 2020 would then sit at £550. Finding another £55pm from October 2019 may be possible.)

If anyone has any other thoughts of approaching this I’d appreciate any advice. I’d also like to start/continue saving, so trying to decide whether taking a huge chunk off my debt would be beneficial for this cause (although my thoughts are as it is 0%, utilising the “free” promotional periods may be more worthwhile in my situation).

I’d also really love to hear any thoughts/advice of best practice, how you keep on top of things around debts and savings or (if applicable) how you would have done things differently! I’m in my mid 20s so still young I guess and trying to set myself up the right way and put this debt behind me (unsecured at least!)

Mnd

Sort out a statement of affairs (SOA) and find out where you spend your money.

If you choose to publish on here you will get plenty of advice.

http://www.stoozing.com/calculator/soa.php

Fireflyaway

Change your mindset or the debt will just come back. If you are using a credit card and not paying it off, you are buying things you can't afford. Not trying to lecture you as I did the same in my 20's. Credit is available everywhere and seen as so normal so no wonder so many of us have debt. Cut up the cards and close the accounts would be my advice. Put some money aside for emergencies.

Chandelier.

Your plan sounds pretty good and you seem to have a positive mindset to debt busting.

As you mentioned, try not to rely on the bonus money. You've yet to get it. Fill out an accurate SOA and see if there is wiggle room within your budget and if any savings can be made. The bonus is a bonus, exactly what it says it is. Try not to think about it before you've got it. Look at your current income/outgoings and see what you can realistically manage from that.

I'd personally get rid of the very account first, just because it's a smaller balance then one less debt. I'd then get rid of the overdraft debt then focus on clearing the barclaycard before the promo rate ends. During this time you could just pay the minimum on your hsbc until you've paid the other debts off then you can then plough all your spare income into reducing the HSBC balance.

That's just another option you could look at although there is nothing wrong with the one you proposed. It's good that it's all on 0% and manageable at the moment but things can always change.

Good luck.

pinknsparkly

Your plan seems pretty solid. As previous posters have said, post an SOA and get some feedback on it. If your bonus is more than £1484 (the amount you've said you'd like to use to make overpayments on your debts) - what do you intend to do with the excess? Set up a pot of emergency savings? Throw it all at the debts? Have some fun with it?

My concern is your partners income.... How long are their current hours guaranteed/fixed for? And can you still make all your minimum payments if their hours drop? If there's reasonable chance that their hours will reduce in the near future then I would make an SOA based on the MINIMUM income they are likely to get. Then, whilst they are working full-time, throw the money that this frees up at your debts. Obviously, I am making an assumption that your partner contributes to rent/utilities etc based (at least semi-)proportionally on their income. If they contribute a fixed amount monthly, regardless of income, then you can ignore that completely! Do you / do you need to build up a savings pots for periods of your partner being unemployed, or their hours dropping so much that between you both you can't make ends meet?

In your situation, I would be aiming to pay off debts within the 0% period, but no sooner, and using any excess money to build up a savings pot for emergencies. Possibly quite a large savings pot if you need to to cover the potential of your partner's hours dropping. You also say that you've got a problem with impulse spending. In that case, I would cut up all your credit cards and delete your credit card details from any online websites you use (and PayPal!). If you need to spend online then use your debit card. There is an argument that credit cards offer some protection on purchases over £100 but I would argue that you probably shouldn't be buying anything over £100 anyway.... I have heard of people freezing their cards in a block of ice - that way they CAN use them if they need to, but they have to wait for the ice to defrost first which gives them time to decide if it's worthwhile or not!!

My biggest tip for turning from a spender into a saver is to question every purchase (including, possibly ESPECIALLY, the little ones: 70p here for a chocolate bar in the petrol station, £1.50 for a bottle of water etc) and whether it is more necessary to buy that item or pay down debt. Many people find that recording every expense works well for them - it's an eye opening way of realising how much you spend a X over a month.

DFW1130

Thanks everyone for replies and your recommendations. I’m going to sit down with my partner tonight and figure out our household SOA. Will post later or tomorrow.

Chandelier, thanks, I’ve just cleared the Very balance just to get it out the way as you suggested. I have thought about changing to minimum payments on the largest debt to clear the smaller card quicker similar to the snowballing method. I’ll look into the numbers later. At the end of the month I’ll look at contributing as much as possible to my overdraft to clear as quick as poss (also because this is the balance where 0% expires first).

Pinknsparkly, thank you for taking the time to write your reply. We have 2 LISAs which we maxed out last year (£8k) but these can’t be touched as a 25% penalty. So with any excess from my bonus I originally thought about filling them up as much as possible. My thoughts now are to put some aside into an emergency pot and then see what I can do about any LISA contributions.

My partner’s work is interesting, she is on a low hours contract but the team is understaffed there are always full time hours available for her (at least in the past few months). A full time perm contract has been mentioned to her so she is working towards that possibility. She does contribute a fixed amount paying half the rent and I cover my half and the bills. Thanks for your advice on impulse spending. I have shut my cards away, I think I have the will power not to touch them, but I recognise the need to cut up/freeze and delete.

A secondary question really is would it be wise to throw as much as possible from the bonus towards the debts? In interest bearing circumstances I would understand that to be the favourable route, but all being 0% would the answer be different? May be neither here nor there; paying it off puts £245 extra in my pocket every month, not paying it off puts the bonus in my pocket.

firebubble

Re whether it's better to use the bonus to save or pay off debt, I would say do what you don't want to do - which as you say, is to spend it on debt. There are two reasons for this: firstly, keeping the bonus in savings will make you feel richer than you are, and it's this feeling that keeps you spending and getting into debt.

Have the pain and regret of seeing your bonus go completely towards debt repayment, then split what you're putting towards debt now between paying off the last bit of the debt and saving it. By the time you'll have paid off the debt, you'll have made much more progress towards creating the habit of saving.

MallyGirl

also worth bearing in mind that the bank can withdraw an overdraft facility at any time, whereas the credit cards will carry on as long as you make the minimum payments.