Are we in debt crisis?

jennytwigs

Hello,

12 months ago my husband and I started our debt free journey with a horrid 78K of unsecured debt. Last January we were finally in a position to tackle the debts, with two decent full time salaries and a reasonable mortgage so we took advice from this forum ( only just officially joined) and for the last year we have made great progress, reducing the debt by 20k. We now owe 58K which is still loads, but a lot better than January 2018.

I was watching a Martin Lewis thing the other day and he was talking about debt crisis. Martin said that if you owe the equivalent of a years take home pay in unsecured lending, you are in debt crisis. I feel really crap about this. We take home £4700 per month so £56400 per year. This means that despite our progress we still owe more than a years take home pay.

Despite our debts being high, we never really felt like we were in crisis. We have been able to clear 20K in 12 months by budgeting and keeping track of our spending. We have been able to pay more than the minimum payments as well as keeping up with our living costs. The only thing that has really changed is the amount that we spend on non-essentials. We have never missed a payment and we haven't accessed any form of credit since December 2017.

Are we really in crisis? Not sure why this bothers me so much, but it does!!

sourcrates

Hi,

I wouldn’t worry too much about it, as long as you are able to service the debts then that’s the main thing, you have a good income and appear to be reducing your debt nicely.

The term “debt crisis” really applies to people who have overextended themselves and are unable to keep up repayments due to a lack of disposable income.

enthusiasticsaver

I think the term debt crisis just means you carry more debt than is sensible. You have reduced it by more then 25% so that is really good but ideally it should still go lower. If you are netting more than minimums then I would not worry too much but just carry on as you have been.

enthusiasticsaver

There are many on here with higher debt and lower salaries and of course it depends on how high your other bills including mortgage payments are.

tealady

You are headed in the right direction which is good.
If you want to post your statement of affairs (SOA) so that we can have a look and (hopefully) suggest ways you can make your money go further.

foxgloves

Our joint take home pay was similar to yours before we started debt-busting. We owed around £35k in addition to our mortgage. We never thought of it as debt because we were never in a position where we couldn't make payments. The change in outlook came when I was feeling cross that with 2 professional salaries coming in, we couldn't afford to buy a camper van because we 'never had any money'. That's when I actually sat down & added up our outgoings & saw what we were paying each month towards debts. Cue the LBM in a big way!
Is it a "crisis level' of debt? I think that depends on things like how secure you would be financially if one of you became unemployed. My.job disappeared in the public sector cuts & my husband's job (same sector) is also vulnerable to this. We would have struggled to service all our debt plus the mortgage on one salary, so I was very glad we had got rid of it by then.
But the good thing is that your debt total is heading in the right direction. Just keep focussing on that. You've a good monthly income. Overpay as much as possible & that total will continue to fall.
F

getmore4less

Are we really in crisis? Not sure why this bothers me so much, but it does!!

That's the problem with generalization in isolation.

Martin said that if you owe the equivalent of a years take home pay in unsecured lending, you are in debt crisis.

By that measure you just secure it and the "crisis" goes away.

Also the generalization does not scale, as income goes up cost don't have to, giving more disposable to tackle the issue.

On another forum the generalized measure was can you create a 5 year plan to clear your debts.
(much more financially savy than this one but has now closed)

If you could create a plan that cleared the debt in less than 5 years you were on the track, if not then more serious measures were needed like DMP IVA and bankruptcy.

We see people on very long DMP they really should not be happening.

You started at £80k with £20kpy available, a 4 year plan nails it.

A 5y plan would be comfortable.

Your focus should be on the cost of the debt and getting rates down.

DCFC79

Sounds like your doing a good job Jenny.

tacpot12

Yes, well done Jenny. One of the things you will find is that as you start to pay debt off, the rate at which you can do so snowballs, so keep pushing ahead and before your know it will all be gone.

HampshireH

I don't want to dismiss your concern entirely because we all worry about different things when they are labelled.

But I wanted to say a HUGE congratulations for clearing 20k in a year. If you now have that attitude to money and can maintain it thats a great achievement.