LBM had. Changes made. Advice or critique Welcome

Pip_Boy_111

Hi all.
First off, let me start by saying I have been avid reader of these forums for quite some time, and a big THANKYOU to all the contributors to this board, who, without realising it, have made such a difference to my, and my family's, financial situation.

*WARNING* long boring back story ahead
I'll try and keep this brief but with relevant details. I left school at 18 and walked into a job with a bank (ironic) and at the age of 18, was offered loans, credit cards and overdrafts (which I gleefully accepted). Enjoyed the life of a typical 18 y/o despite only earning around 10k p/a. The attitude of "YOLO" was in full swing :rotfl:
Fast forward a few years and moved in to rented accommodation with my then g/f (now wife) and suddenly these things called "bills" appeared. Different job but still only earning around 18k p/a combined, the "YOLO" attitude was diluted with bills but still prevalent. Minimum payments only, re use credit once cash was gone etc. Fast forward to first child, and then later second child, still renting, still relatively low paid, with debts to cover as well as bills and things were getting pretty stressful and, at times, really depressing. Pay debt, pay bills, run out of cash use credit, rinse repeat. LBM still not really had.
Fast forward again. Better job, MUCH better pay (to the tune of around 3x higher p/a) but the YOLO attitude reappeared (not to the same extent, but having a new car after driving a rust bucket since school was too appealing) :rotfl:

Anyway, `last year I realised that the debt needs to go. I have always covered payments and haven't a blemish on my credit file (other than high debt to income ratio). After reading this forum and picking up advice from various regulars to other people in need of advice I had my LBM.

Since then I have been implementing my evil masterplan to rid our lives of debt. So far, thanks to this forum I have:
Created a very detailed spreadsheet to breakdown all financial incomings and outgoings (love a spreadsheet) :j
Started "piggybanking". Such a simple concept but until I did it, I hadn't realised how much easier it made keeping track of everything.
Already shopped at A*DI, Bee and Em etc, but now take a list of everything we will need for two weeks worth of meals (weekly is too regular for me, hate shopping) :mad:
Started snowballing the debts, what a difference this has made, seeing one debt fly down rather than trying to spread things too thin.
I use the cheap energy club and credit club to make sure i'm not paying too much in energy or interest.
Picked up a lot of tips from the Old Style board (wont list them all as this is turning into a novel):D

These are the main things we have done to rid ourselves of debt that's been hanging around for the best part of 15 years (and increased in that time). I welcome any feedback or tips, if not it's just good to write it all down and say thankyou to people who don't know me but have helped without realising it. :beer:

Last part, some figures. Debt when starting after LBM (around 9 months ago ish) Just over £30k spread across 3 CC's a big personal loan and an overdraft. Total now stands at £26,275.86p (pennies are important now ) with 2 CC's paid off and the O/D vastly reduced and should be gone within 2 months. I wont post an SOA because I have everything worked out and I know what needs to be paid an when and so far its going well, with a nice balance between paying debts and living (just not with a YOLO attitude so much :rotfl:) We are fortunate that we can afford to do this, are not in serious trouble and will be debt free within 3 years (card cut up by the way :money:).

So thankyou again everyone. If anyone has any more DFW tips I welcome them all. Your help on these boards has been amazing and helped me stop the debt cycle before it was too late. THANKYOU :beer:

Sanctioned_Parts_List

Well done - great first post!

One thing not covered in the above - are you diverting any money into savings? Once I'd got everything worked out and automated, and all debts transferred to interest-free lenders, I actually backed off the repayments somewhat to divert a decent chunk into savings.

It took about 18 months longer pay everything off finally, but in the meantime, I also have my panic buffer already in place, which helped a year ago when the boiler finally gave up and shed rusty water all over the kitchen.

Pip_Boy_111

Hi Sanctioned Parts List, thanks for reading.

Yes, one thing I worked out fairly recently is that I could back off slightly on the repayments and divert around £50 p/m into savings. It isn't much but it's slowly building into a nice little pot to fall back on if anything major breaks down that I haven't already foreseen or budgeted for (no idea what it might be but hey, life) it's psychologically quite nice to have a balance in the savings account after all these years too. I'm a big believer in the mindset being as important as the cold hard numbers, so although many may say it's a bit counter productive to have the savings whilst paying debt, I know this is something that both my wife, and I, need to keep us out of the "slogging away" mindset. We know we could probably pay things much sooner, but during that time we would be living like hermits and it isn't really fair on the kids to miss out for our (mainly my) mistakes.

Sanctioned_Parts_List

Pip_Boy_111 wrote: »

I'm a big believer in the mindset being as important as the cold hard numbers, so although many may say it's a bit counter productive to have the savings whilst paying debt, I know this is something that both my wife, and I, need to keep us out of the "slogging away" mindset. We know we could probably pay things much sooner, but during that time we would be living like hermits and it isn't really fair on the kids to miss out for our (mainly my) mistakes.

It's counter-productive to have savings while you have interest-bearing debt. Once the debt's interest-free, it's perfectly reasonable to hold both savings and debt at the same time.

Turningpenniesintopounds

Great post, Pip Boy! Sounds like you’re making excellent progress. Have subscribed to your diary to cheer you on x

Pip_Boy_111

Turningpenniesintopounds wrote: »

Great post, Pip Boy! Sounds like you’re making excellent progress. Have subscribed to your diary to cheer you on x

Thankyou very much. I hadn't really intended this to be a diary as such, it was more of a way to say thankyou to everyone after reading anonymously for quite some time. Although now you mention it, it may be a good idea to put things down in writing to keep myself honest and maybe get some other people's views and ideas, so thanks for the idea. The forum gives again!
With regards the savings, the loan is at a fixed rate of 7.6%, however I have checked with credit club and I cannot get a lower rate with any decent chance of being accepted, nor a BT card with nearly enough of a limit. However, the loan is a set amount from the beginning (i.e. interest is already added to the balance) with a fixed monthly repayment, so the only way for the amount of interest paid to go is down, via overpayments (unless I've got this wrong) now i'm doubting myself:eek: . My plan of attack is to pay what's required of the 0% debt to clear it before the offer runs out, paying anything left over in the debt repayment budget towards overpaying the loan. Once the 0% debt is gone all of that will then go towards the loan. In the meantime, I still like the comfort blanket of having a small pot for the unforeseen. Optimal? Maybe not. But like I say, the mind is a funny thing
P.s. I know the rate is not the best around for the loan and I also know that debt consolidation loans are a terrible idea! Go on, ask me how I know

chelseablue

Sanctioned_Parts_List wrote: »

It's counter-productive to have savings while you have interest-bearing debt. Once the debt's interest-free, it's perfectly reasonable to hold both savings and debt at the same time.

Sound advice.

My debt is at 0% and what I do is whatever is left the day before payday I transfer half to savings and the other half goes to the credit card

Pip_Boy_111

So with regards to the loan, setting aside my comfort blanket thinking, would this logic still hold true? In so far as the loan already has the interest built into the balance, i.e. the payment is fixed so isn't the same as only paying minimums on interest bearing credit cards (where it will take longer AND cost more in interest). Also bear in mind switching it to 0% isn't an option at the moment. Am I missing a trick here?
This has got me doubting my own logic now! But I guess I did ask for comments and advice :rotfl:

adg89

What you need to check is the following:


- any fines/penalties for overpaying
- how interest is charged
- any early resettlement fees


For example, I recently took out a £7k loan with my building society with a rate of 9% so the cost if I made my payments regularly over the 4 year duration is £173 (£1304 interest).


However, my interest is charged monthly on the amount I currently owe and I am allowed to overpay as much or as little as I want (but the £173 will still come out each month). If I choose to overpay, this reduces the capital I owe to the building society, thus reducing the interest they can charge on the debt so my plan is to overpay once my other debts charging interest are fully repaid to reduce the cost of the loan.


In summary, check your personal loan agreement for the above points as this will help you see if it's worth you overpaying (if you are going to be charged any kind of fee to overpay, I wouldn't bother, but instead build up the funds to settle early as most will charge around 60 days interest to settle the full balance early).


Hope the above helps!


adg89

Pip_Boy_111

adg89 wrote: »

What you need to check is the following:


- any fines/penalties for overpaying
- how interest is charged
- any early resettlement fees


For example, I recently took out a £7k loan with my building society with a rate of 9% so the cost if I made my payments regularly over the 4 year duration is £173 (£1304 interest).


However, my interest is charged monthly on the amount I currently owe and I am allowed to overpay as much or as little as I want (but the £173 will still come out each month). If I choose to overpay, this reduces the capital I owe to the building society, thus reducing the interest they can charge on the debt so my plan is to overpay once my other debts charging interest are fully repaid to reduce the cost of the loan.


In summary, check your personal loan agreement for the above points as this will help you see if it's worth you overpaying (if you are going to be charged any kind of fee to overpay, I wouldn't bother, but instead build up the funds to settle early as most will charge around 60 days interest to settle the full balance early).


Hope the above helps!


adg89

Off to log in and check the documents now. Will report back forthwith! (and thankyou)

Pip_Boy_111

ok, so the lovely helpful people at HSBC have kindly starting "decluttering" my documents for me online. Helpful, NOT. So I now have to wait for the paper version to arrive by good old fashioned snail mail. :mad:
To clarify I know I can overpay without penalty, I just need to find out by how much and how the interest is calculated as per advice given.
UPDATE:
I have found the following:
What is the cost of the loan? 3. We charge a fixed amount of interest which we add to the loan when we open the loan account. The total amount payable by you is the sum of interest and the loan. Although it is added upfront, we work out interest (and the APR) as if the loan amount was reduced by each projected repayment, using the interest rate, the number of monthly repayments and the period of the loan. For these purposes, we assume we provide the loan one month (or, if you have an initial payment holiday, three months) before the first repayment date.

9. If you repay part of the loan early, your monthly repayment will stay the same but you may repay the loan more quickly. If you repay the loan in full, the formula in the regulations we use to work out the reduced amount of interest we can charge, works as if we charged interest at the rate that applies to the loan from the date we gave you the loan to the date which is 28 days after you give us notice, plus an additional month if your loan is repayable over a period of more than 12 months. For example, if the loan is for 36 months and you give us notice on 1 September that you want to repay the loan on 14 September, the amount required to repay the loan will include interest up to 29 October.

So am I right in my assumption that the interest remains the same and the only thing that changes with a regular overpayment is the time to repay? i.e. the amount is the same whether its 3 years or 5 years??? Sorry if I'm missing the bleeding obvious here but I'm going a bit word blind after all the reading I've done today