Budgeting "Piggy-Backing"

bestfootie

Appreciate any help anyone can offer. Here's my situation:-

I've got a main bank account that my salary gets paid into.

I've spent a number of hours preparing a budget according to this guide:-

https://www.moneysavingexpert.com/banking/Budget-planning/

After making some changes to my budget, I'm currently budgeting to spend £3,197.54 less than I earn (which is positive).

However, I'm in around £8,671 worth of debt, the majority of that now on a 0% credit card for around 27 months.

After health-induced absence from work for circa 2 months, the massive reduction to earnings during that period ended up putting my main bank account into overdraft. I've managed to get £1k put in to it but I'm still in the red. I'm back at work now.

In order to get hold of this before it gets any worse, I called my bank and asked them to temporarily extend my overdraft again so I could get the books in order. After 30 min phone call this was refused on the basis that my paycheques over the past few months haven’t shown enough going in to cover outgoings. They suggested StepChange. I went on the website and filled in all the relevant info. According to their calculations I’m £230 pm over budget based on my spending. They suggested I need to do:-

“We recommend a temporary repayment arrangement
You are spending more money than you have coming in. You can only afford to make a token payment to your debts. This can be as little as £1.
• A token payment shows you are willing to deal with your debt but cannot afford to pay.
• This is not a long term solution but will give you time to take steps to improve your situation.
• Remember your priority bills come first. Always make sure you pay these before you pay your debts.
Download and read your personal action plan to find out more.”

The thing is, my debts are not owed to household utility places where I'd send them such a letter, rather my debts are on a credit card and overdraft that I can pay minimum payments on every month. I need to find a solution to deal with this.

According to Martin’s recommendations on ‘piggys’, I’ve set up a ‘Bills’ account with a separate bank. On the back of that bills account, I’ve set up around 4 or 5 savings accounts that I’ve labelled with my main expenses from the budget.

However bearing in mind:- a) my main account is in overdraft (and I’m always playing catch up now unless I get a big cash injection or make big lifestyle changes which I can’t/am unwilling to make); and b) I can’t pay bills etc from these new savings accounts, I don’t know how I move forward form here….

Any advice greatly appreciated!!

eskbanker

bestfootie wrote: »

According to their calculations I’m £230 pm over budget based on my spending.

Do you agree that you're spending more than you've budgeted for? Do you know what the explanation is? Are you going to adjust your budget or your spending?

While it's good to plan a budget (assuming you can then live within it) and put in place some measures to help you stick to it, you may also benefit from suggestions about how to address the underlying debt issue, so I'd suggest posting on the debt-free wannabe board, and in particular sharing a Statement Of Affairs that's a meaningful and accurate representation of your income and outgoings.

Ultimately you really have three options:

1. Refinance debt (do you have access to any more credit at lower cost than your existing debt?).
2. Earn more.
3. Spend less.

so best not to get into the mindset that a budget by itself is enough to solve everything, difficult though it can be to get to the lightbulb moment....

SnowTiger

bestfootie wrote: »

The thing is, my debts are not owed to household utility places where I'd send them such a letter, rather my debts are on a credit card and overdraft that I can pay minimum payments on every month. I need to find a solution to deal with this.

You can send letters to credit card companies and banks. They print contact details on the back of their statements.

However, they aren't usually interested in helping customers until after they've defaulted. When that happens they'll send negative information to the CRAs, write you nasty letters at £12 a pop and you'll lose your interest free deals.

You already pay little towards your debts. 1% or 2% a month? How little should they accept?

bestfootie wrote: »

However bearing in mind:- a) my main account is in overdraft (and I’m always playing catch up now unless I get a big cash injection or make big lifestyle changes which I can’t/am unwilling to make); and b) I can’t pay bills etc from these new savings accounts, I don’t know how I move forward form here….

Set up a bank account (a current account) that you can pay bills from.

You have debt, your income is more than your outgoings and you're unwilling to change your lifestyle to fit your income.

I'm not sure what to suggest. You could pop a SOA on The Debt-Free Wannabe Board board. I suspect you won't be very receptive to suggestions.

Ben8282

If I understand things correctly, your immediate problem is the fact that your bank wish to withdraw the overdraft facility and are demanding full repayment of the overdraft. The reason for opening the additional accounts is to protect your money as you are concerned that if your pay is paid into your overdrawn bank account, the bank will take all the money to repay the overdraft and leave you with nothing.
Forget the idea of token payments or advising the credit cards where you have 0% balances that you have any difficulty in making the minimum payments. They will not assist and will make problems for you such as your bank has made. Do everything possible to keep up the minimum payments.
If your credit card accounts are in good order, you could always try getting your credit limits increased or applying for a new credit card.

Terry_Towelling

Might as well start with the 'crunch' questions. Is your budget realistic? Does it include credit card payments? Does it include something for discretionary spending? Will you stick to it? If the answers are all 'yes', it's hard to see why there should be an ongoing problem.

Your bank's view is based on historical data (I guess). However, you have gone back to work (meaning your salary payments will go back to a normal amount/pattern) and you've done a new budget. This means the future will not look the same as the past. Indeed you've concluded that (going forward) you will have a surplus (annual?) of around £3200

You've not said how much your overdraft is and a £1K injection hasn't cleared it, but will your annual surplus cover it and, if so, how much surplus will you then have left?

Borrowing your way out of debt isn't a sustainable way forward but I'm wondering whether a short-term solution might be a 0%-on-purchases credit card rather than an overdraft extension. Obviously you'd have the problem of getting one, but it might be the best option for a bit of a 'cushion'. It won't actually clear any debts but it will ease cash-flow by deferring some outgoings for a few months thereby freeing up a bit of extra cash to throw at your overdraft. You would of course need to tweak your budget to account for payments towards any new credit card.

Without knowing the full extent of your overdraft and whether your working situation is going to remain the same, it's hard to be completely confident about your short to medium-term future but if you keep to that budget, things look reasonable.

So, do you agree with your bank that you will continue to spend more than your income or is your new budget accurate and will you keep within it to prove your bank wrong and steadily haul yourself out of the mire?


Edit - I have assumed by a temporary overdraft extension you mean an increase in the amount rather than an increase in time.

bestfootie

Ben8282 wrote: »

If I understand things correctly, your immediate problem is the fact that your bank wish to withdraw the overdraft facility and are demanding full repayment of the overdraft.

No, they're not saying that... they're saying that they won't give me any further overdraft. I'm still within the arranged overdraft limit they are just not agreeing to up the overdraft limit...

bestfootie

Terry_Towelling wrote: »

Might as well start with the 'crunch' questions......

I've Pm'd you.