Trying to avert disaster

JayRitchie

Wow - that SOA looks very tight! People will tell you you can reduce the grocery spend, but your clothing/ haircuts and incidentals look low. Unrealistic?

When will you need to replace cars? In a multi year plan that matters.

As you know you need to hit the credit card balances hard and fast. This will improve your chances of getting reasonable rates when you need to transfer balances on the cards at lower rates, and you are spending a fortune in interest. If you push the spare £1,500 a month at the cards you clear the balances of £4,400 in 3 months and free up some minimum payment balance to clear off the £800 balance (as its small) and then the wifes barclaycard.

Then another few months to clear the balance of £7,000 and your whole position will look different within a year.

theoretica

I guess you haven't been overpaying your debts by £1500 a month? I think you might benefit from looking back at all your bank and card statements for a couple of months to see how much has really been going on different categories, so you know how much you are trying to change your spending.

becks818

JayRitchie wrote: »

Wow - that SOA looks very tight! People will tell you you can reduce the grocery spend, but your clothing/ haircuts and incidentals look low. Unrealistic?

When will you need to replace cars? In a multi year plan that matters.

As you know you need to hit the credit card balances hard and fast. This will improve your chances of getting reasonable rates when you need to transfer balances on the cards at lower rates, and you are spending a fortune in interest. If you push the spare £1,500 a month at the cards you clear the balances of £4,400 in 3 months and free up some minimum payment balance to clear off the £800 balance (as its small) and then the wifes barclaycard.

Then another few months to clear the balance of £7,000 and your whole position will look different within a year.

Thank you. I think the difficulty is that we have never thought about how much we were spending until fairly recently so it's difficult to know what is a 'normal' amount.

My wife's car is relatively new so we have a good few years left in that, however mine is older and this does worry me. I drive 1000 miles per month so I need something reliable. In the past I would have just took a loan out or financed one but I need to consider how I am going to fund this without resorting to credit.

enthusiasticsaver

You need something in emergency fund. That will be the reserve fund rather than credit cards in the future. I would get rid of the aqua first. I know it is not the most expensive but it would be an easy one to get rid of quickly. Then tackle the bad credit cards.

A spending diary is a must for you too.

JayRitchie

becks818 wrote: »

Thank you. I think the difficulty is that we have never thought about how much we were spending until fairly recently so it's difficult to know what is a 'normal' amount.

My wife's car is relatively new so we have a good few years left in that, however mine is older and this does worry me. I drive 1000 miles per month so I need something reliable. In the past I would have just took a loan out or financed one but I need to consider how I am going to fund this without resorting to credit.

Perhaps read through some of the threads and budgets on the Mortgage free wannabe forum? I think you would find more people with similar incomes and family circumstances so can check how much they spend and and what.

Anyway, I'd go for the 'dont spend money' approach and see what happens. Thinking about travelling to a wedding. Dont. You cant afford to. Night out in a restaurant? No. You need at least a year of spending nothing apart from the essentials.

BabyStepper

Hi becks

Good to meet you and well done posting your soa. You've had some good advice already on here and I just want to add something about putting the debt on your mortgage.

The reason this is not recommended is because it doesn't address the problem. The problem is that you don't yet know how to budget and live within your means, the debt is then the symptom. Shifting debt to your mortgage means you will still have the same lifestyle and likely accrue more debt, and we may find you back here in a few years with twice the mortgage and the same unsecured debt.

I'm a big Dave Ramsey fan and his thoughts are that there is no wage in the world that can outrun mindless spending. If you make £5million a year and spend 6 then you are not wealthy, you just have a good wage but are accruing a load of debt. If you made 5 milion and spent 4 then you'll be wealthy in no time. In many ways it's not connected to your income although you obviously need enough to cover all your expenses and a bit more.

You have everything you need to nail this. Your income is good and you're working things out. Keep posting and be patient with yourself as you figure out your budget. It's not easy but you will get there.

Good luck.

System

Even if you pay 2k off of your debts per month to leave you with a bit of money left over, it will still take 3-4 years to pay off. Can you use some of home equity to pay at least half?

enthusiasticsaver

andydownes123 wrote: »

Even if you pay 2k off of your debts per month to leave you with a bit of money left over, it will still take 3-4 years to pay off. Can you use some of home equity to pay at least half?

This is not generally recognised as a good way to deal with debt. Turning unsecured debt into secured leaves people vulnerable if they lose their job or are off sick for any length of time as they have larger mortgage payments. Putting your home at risk for credit card debt is not in my opinion sensible. It also does not address the reasons for getting heavily into debt. There needs to be a change in spending habits and just transferring the debt on to the mortgage won't do that.

If the OP keeps more or less to the soa then he will have almost an extra £18000 a year to pay the debt off which would clear the interest charging debts in one year or less. The 0% debts and low interest could be dealt with at a more leisurely pace if so needed to give the OP some breathing space but he has a high enough income to deal with this easily if he and his wife focus and impose some spending restraint.

OP I hesitate to say you have £1500 spare to throw at the debts as I don't think you would be in this pickle just because of overspending on clothes and entertainment. That soa needs to be kept updated but in the meantime I would try and put at least an extra £1000 towards the debt each month to get rid of the high interest cards. Emergency savings also need to be addressed. You can get cheaper insurance by using comparison sites. Do you not take holidays as there is nothing in your soa for that?

theoretica

andydownes123 wrote: »

Even if you pay 2k off of your debts per month to leave you with a bit of money left over, it will still take 3-4 years to pay off. Can you use some of home equity to pay at least half?

As a numerical solution it is tempting - someone with £125k mortgage probably wouldn't be advised to pay half off of it with credit cards and unsecured loans. But, as said above, the real problem is not numerical and who the debt is with - it is spending money without a plan and without keeping track of it. Once the spending is demonstrably under control for a year or so then looking at the home equity might be worthwhile, but much of the highest interest debt should be gone by then so it might not be needed.

EssexHebridean

OK - comments in red as always.

becks818 wrote: »

So here goes....

This is our first SOA and I am sure we will need to change/update it. Yes, that's the way it normally works!

It was actually a useful exercise as it made us really look at our spending. I should add that the entertainment and clothes budget are estimations as we have never had any restraint in these areas.

It also highlighted that we are able to do this with a little effort and determination.

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

Monthly Income Details
Monthly income after tax................ 3840
Partners monthly income after tax....... 1225
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 5065

Monthly Expense Details
Mortgage................................ 509
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 125 If this is currently paid over 10 months then switching to 12 can help with budgeting
Electricity............................. 66
Gas..................................... 90 Check comparison sites to make sure you are on the best deal - then work to cut useage. Both the gas & electric are high so there should be room for savings here.
Oil..................................... 0
Water rates............................. 34
Telephone (land line)................... 20
Mobile phone............................ 50 How many phones? re any out of contract so can switch to SIM only plans?
TV Licence.............................. 12 Pretty sure that this should be £12.XX" - I know that seems picky but if someone is rounding down pennies on one thing, they are likely doing it elsewhere too - and that, done over 50 or 75 spends in a month can make a big difference.
Satellite/Cable TV...................... 27
Internet Services....................... 15
Groceries etc. ......................... 400 You can knock this by £100 a onth easily enough
Clothing................................ 50
Petrol/diesel........................... 200 Read Martin's guide on the main site to driving economically.
Road tax................................ 5
Car Insurance........................... 82
Car maintenance (including MOT)......... 50 For two cars - does this cover everything realistically? Servicing, MOT, tyres, screenwash, wiper blades...
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 120
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 24
Pet insurance/vet bills................. 0
Buildings insurance..................... 25
Contents insurance...................... 12
Life assurance ......................... 41
Other insurance......................... 0
Presents (birthday, christmas etc)...... 50
Haircuts................................ 10
Entertainment........................... 100
Holiday................................. 0 Really - never even a weekend away, or a "Staycation" with days out from home? Are the kids approaching an age where holidays with school will start to be offered?
Emergency fund.......................... 0 Take any savings you make elsewhere and throw them to this pot. You need this - an homeowers with cars aim for £100 in here to start you off.
Total monthly expenses.................. 2117


Assets
Cash.................................... 0 OK - so where is the money you say yiou budget for car maintenance, presents etc going?
House value (Gross)..................... 200000
Shares and bonds........................ 0
Car(s).................................. 8000
Other assets............................ 0
Total Assets............................ 208000


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 60000....(509)......1.89
Total secured & HP debts...... 60000.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
loan 1.........................13000.....275.......7.9
loan 2.........................5000......90........3.3
CC low rate....................12000.....200.......6.9
Aqua...........................800.......0.........16
Very...........................1500......105.......0
wife barclaycard...............5400......195.......18.9
CC ( another bad one)..........4400......120.......20.2
CC card ( bad one).............7000......251.......19.9
CC 0%..........................15000.....150.......0
Total unsecured debts..........64100.....1386......-


Monthly Budget Summary
Total monthly income.................... 5,065
Expenses (including HP & secured debts). 2,117
Available for debt repayments........... 2,948
Monthly UNsecured debt repayments....... 1,386
Amount left after debt repayments....... 1,562 Smashing - now you know you have over EIGHTEEEN THOUSAND POUNDS A YEAR spare - you need to track it down.

Personal Balance Sheet Summary
Total assets (things you own)........... 208,000
Total HP & Secured debt................. -60,000
Total Unsecured debt.................... -64,100
Net Assets.............................. 83,900

I've deliberately shouted that figure above at you - as that is the real life picture. If that £1500 odd a month is getting frittered away, you are, in the course of a year, spending mindlessly a quarter of the figure you currently have in debt. Or to put it another way, a brand new mid range car. Every single year. That should sharpen the focus a bit!

You're in such a fantastic position here - and you have ALL the keys to improving your situation right there in your own hands, which is fantastic.

First thing, register with the MSE credit club uif you're not already a member - then use that to try to establish whether there is any chance of any more 0% BT cards being available to you. If there are then shift the highest interest rate cards across and then close those accounts.

When does the Very account stop being 0%? I'd actually be tempted to just get that one gone to be honest as while the account is open it's going to be very tempting to spend on it - on the basis of it being "buy now pay later" - you can get that shifted in a bit over a month if you're canny with your budget so one to think about. As soon as it shows clear - close the account if you do take that route.

At this point - until you see how you go using traditional methods - I'm going to urge you to ignore anyone suggesting you add the debt to the mortgage. Aside from anything else it won't help you to learn from the process, and unless you want to be back on here in another few years with the same debt again, that's pretty key. In your situation - good income, dependants etc, that must be an absolute last resort as it is seriously risking the roof over your heads. That is not a route to take to save yourselves a few years hard work, to be honest.