Getting myself debt free - consolidation?

enthusiasticsaver

I will not labour the point about consolidation being a bad option for you as this has already been done. Even if you get a decent loan rate, which I doubt there are questions to be answered honestly first.

Why have you only been paying minimum payments on the cards especially if £8k is costing you in interest?


£28k is a lot of debt to accrue on just living beyond your means. You have no assets to show for that so be honest with yourself about how your lifestyle is beyond your fairly good wage although I recognise that nothing goes far in London.


If you want to start living a financially responsible life that means using discipline to not buy stuff or go on holiday when you cannot afford it. It means saving for things and being strong minded enough to say no when your budget is spent for the month. It will be tough as you are going to have to pay a considerable amount of your monthly income on repaying debts you have incurred in the past. It will be worth it but it may mean sacrifices.

-taff

ryanm8655 wrote: »

My job is more secure than a job with the police and my pay would be guaranteed in the unlikely event I was made redundant. But I get your point, perhaps I’ll have an accident and be unfit for work for two years or some other shock event....

Could happen, it happened to me. I had a large lump sum of savings that are virtually all gone now because I haven't been able to work for nearly a year. Luckily I had no debt except regular bills and the mortgage. I'd have been homeless otherwise.
I'd also suggest an insurance plan of some sort with a payout for critical illness.

ryanm8655

Here is my SOA:


The minimum payments are all rounded up slightly. Rent includes bills, but will be reducing by £200 next month all being well...


Statement of Affairs and Personal Balance Sheet
Household Information
Number of adults in household........... 1
Number of children in household......... 0
Number of cars owned.................... 0
Monthly Income Details
Monthly income after tax................ 2930
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2930
Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 950
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 0
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 35.41
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 7.99
Groceries etc. ......................... 200
Clothing................................ 20
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 40
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 8
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 15
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 12.5
Haircuts................................ 15
Entertainment........................... 350
Holiday................................. 50
Emergency fund.......................... 17
Total monthly expenses.................. 1720.9

Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 2000
Total Assets............................ 2000

No Secured nor Hire Purchase Debts
Unsecured Debts
Description....................Debt......Monthly...APR
Barclays.......................7336.48...150.......0
Santander x2...................8055.75...160.......23
Tesco..........................455.44....8.........20
MBNA 2.........................4942.93...50........27.93
MBNA...........................1338.02...0.........0
MBNA...........................3146.79...75.87.....22.93
M&S............................1254.85...32.17.....0
Tesco..........................2417.44...20........0
Total unsecured debts..........28947.7...496.04....-

Monthly Budget Summary
Total monthly income.................... 2,930
Expenses (including HP & secured debts). 1,720.9
Available for debt repayments........... 1,209.1
Monthly UNsecured debt repayments....... 496.04
Amount left after debt repayments....... 713.06
Personal Balance Sheet Summary
Total assets (things you own)........... 2,000
Total HP & Secured debt................. -0
Total Unsecured debt.................... -28,947.7
Net Assets.............................. -26,947.7
Created using the SOA calculator at www.stoozing.com.
Reproduced on Moneysavingexpert with permission, using other browser.

JayRitchie

When are the end dates on the zero rate cards?

ryanm8655

The almost £5k of Barclays ends in August. The others are all 2020 or later.

Have them all set out in a spreadsheet but just put my laptop away to go to bed.

The balances will be slightly less as I’ve had payments come out for my cards since I put together the spreadsheet but it’ll be a pretty negligible difference.

Every time I clear some balance Barclaycard offers me another 18 month 0% offer, hence one thought is to get a loan at a lower rate and clear some of the interest bearing cards, while transferring some balance to the barclaycard at 0% for 18months. Though I know people in this thread are averse to that move.

ryanm8655

I can’t find a way to upload a picture of my spreadsheet but here’s the situation over the next few months:
Currently 11657.98 is charging interest
In July it becomes 16600.91
In August 21381.68
Feb 2020 24059

The next lot of 0%s end in July 2020 or later.

Perhaps I do need to be more stringent with my budget in the short term...

My thinking is get a £10k loan to pay off MBNA, Barclays (0% on almost £5k ends in August) and a bit of some others (rate would be 16/17%). Those two cards then offer me further 0% deals that I could transfer some of the other interest accruing balances onto, to at least reduce the interest payments as much as possible and maximise the debt reduction. I definitely wouldn’t use the cards but appreciate why people wouldn’t trust that. I have made the error of consolidation before and managed to increase my debt...so am well aware of the traps...my thinking is to pay the loan within a year (repayment will be something like £900/month)

Open to ideas though.

-taff

As long as you never use the card again after paying it off, and the total you'll pay on the loan is less than the amount you will pay on the credit cards over the payment schedule, then it's not a bad move. Also as long as you only borrow what is needed for the debt, not a little extra on top to go and spend.
Trouble is, if ou borrow a large lump sum and commit to paying that back, say over 5 years, you're paying far longer than if you pay much more than the minimum. This means that anything you may want to do in the future is being affected by your choices now.
You could throw a lot more towards the debt, and save in the emergency/wedding fund, and then change that to the emergency/mortgage fund.
Just moving some of the high interest debt to the barclaycard when you get a 0 offer is a good move.


|Minimum payments is not a good idea on interest bearing cards. My OH had a card that was being charged a monthly 9.99, his payments were set to minimum and he never checked the balance. So he'd pay £5 odd a month. Fast forward a couple of years and that 5 is paying 2 off the balance and 3 in interest. It wouldn't have been so bad except the 9.99 was for something for a friend that he didn't realise was still coming out.



When you clear your cards and keep one or two, set them to pay all of it off the next month instead of minimum payments.
Paying a monthly amount and still incurring interest is a sneaky credit card trick that fools the user into thinking they don't owe that much and the payments are affordable. Stack a few more payments on top of that f and before long it gets unamanegeable for a lot of people.
You're not unmanageable yet

Willing2Learn

Good morning Ryan

Just a couple of things with your SOA, that I change, if it were me

• Are you really only spending £20/month on clothing? That is only £240/year.
• You ideally need to increase the amount going into your Emergency Fund. I would recommend between £50-£100/month.

And here is the big question:
Do you really have over £700 surplus income every month (after debt repayments and all other expenses)? Or does this money seem to disappear? I'm just trying to confirm this, because if you do have this surplus then you don't need a consolidation loan. You would simply use the surplus to pay off your debts quickly, so as not to waste money paying interest

ryanm8655

Thanks again for the replies!

I don’t have £700 surplus every month, until recently I’ve spent every spare penny generally. I have a credit card with a limit of £1000 that I clear in full each month and use as my spending money, once it runs out I stop spending. That’s been my version of budgeting for the last 6 months.

I’ve based the SOA on a new proposed budget. Can prepare one based on actual spending, it’ll add a heap of eating out and going for drinks essentially. It’d be adding about £700 to the entertainment column.

Re: clothing, I have so many clothes that I really don’t need to buy any more, that’s mainly based on the fact I’ll need a couple of pairs of jeans and a new suit for weddings but other than that I must have about 30 shirts, plenty of shoes and trainers, lots of coats etc. Can see where a chunk of money has gone over the years...while I had access to plenty of credit I’d do things like buy a shirt to go out in when I wasn’t near home and stupid things like that. I could probably sell clothes to fund new necessity purchases tbh have a number of shirts I’ve only worn once...

Happy to add to the emergency fund, main reason for not doing so is the opportunity cost of the difference in interest but can see the logic in not relying on a credit card for emergency purchases and breaking bad habits.

EssexHebridean

Some of my points may have already been made but I'm going to apply them directly to your comments as that may prove more effective. See comments in red:

ryanm8655 wrote: »

Hi all,

Have managed to get myself into a fair chunk of credit card debt through 0% deals and generally living a plush lifestyle. OK - well done for admitting that.

Having completed a spreadsheet my total debt is £28000 almost exactly. A number of the 0% deals are ending, at present £8k is charging interest and a further £4.5k will charge interest in July followed by a further £4.5k in August. The rest end next year and the year after. What further 0% balance transfer deals does the MSE crdit Club suggest you may be worth applying for to sort out the stuff that is now interest charging?

My total monthly income after tax, pension etc. Is £2930.

Monthly outgoings: £1700 Check this is correct - preferably b y using something like the SOA calculator that has already been recommended to you. You may well be missing stuff in here.

Rent - £950 (inc. bills)
Shopping (food/toothpaste etc.) - £200
Minimum payments on all cards - £550 (some of this will be decreasing balances but not made the spreadsheet complex enough to work this out) If you are not currently spending on the cards at all then set ALL payments to just above where the minimum payments are currently - this stops the payments decreasing, means you don;t need to keep track of the changes to account for the reductions, and makes more impact on the cards ove time without you needing to do anything.
Mobile - £30
Haircuts - £20 (live in London, barber is about £15 but rounded to £20) Leave an extra week between barber visits
Train home to visit family - £50 Is this booked ahead of time and making use of any discounts etc you can apply? Are you entitled to a young person's railcard, for example?

This leaves me £1230 for clearing down the debt and other miscellaneous expenditures like birthdays etc. Excellent - so that's £14,760 per year you have as disposable income for paying against debt....except it isn't is it, because as you say you're not accounting for everything in your expenditure....

I’m considering budgeting £500 a month for the occasional meal out/pub trip though I appreciate that will probably be frowned upon. But it’s to try and make this plan sustainable. Try budgeting the odd £230 from your disposable income to cover birthdays etc AND your entertainment budget - that would be rather more reasonable for someone with £28k of debt, to be blunt about it.

The interest rates on the cards range from 20% to 27%, so the strategy is to put all my funds into the higher interest rate cards first while paying minimum on others. Though once card does renew the 0% offering every month, so am planning to pay that off and transferring another balance to it to lower the overall interest. Yes - this is the right way of proceeding BUT you also need to be looking to transfer those current interest charging cards onto 0% BT cards as those become available to you.

Given the interest rates I am also considering a loan to clear the interest accruing balances if the interest rate is better. Nope - for ALL the reasons others have already said...

I have been looking at loans but the eligibility test doesn’t look promising This is also excellent news. with them all showing minimal chance of acceptance. I move a fair amount and am not yet on the electoral roll at my new address, plus my debt level obviously makes me a high risk (I don’t own a house). Having played around on Zopa the best rate I managed to get was 16% on £10500 over two years paying around £550 a month back (one year was a higher rate for some reason). This would allow me to clear the interest accruing debt and get it down to a lower rate (including transferring a chunk onto 0%). I can then save a chunk of money towards clearing the other 0% cards as they fall due (or is it better to just clear them down? I’m thinking as an economist and not considering the potential impact on credit rating etc. Of clearing down the 0%s early). Why would you want to take debt on which you are not paying interest and start paying an exorbitant 16% on it, for goodness sake?

I’m also planning to move into cheaper accommodation that’ll save an extra £200/month after bills and rent. Great - that's another £2400 a year off the debt then - well done.

Does this strategy sound reasonable? Is there any point in attempting to apply for a loan with my bank or will it be worse than Zopa? Any other way I could go about things better? Yes - lots of them - as the replies underline!

Advice much appreciated.

ryanm8655 wrote: »

Without disclosing what my job is, it’s secure. Could get made redundant but highly unlikely and payout would be enough to clear everything. Always plan for a possible worst care scenario - an Emergency Fund is also a good plan of action regardless of how secure you hope your job is.

Why isn’t a loan a good idea if the interest rate is lower? I’d be closing down the cards afterwards so wouldn’t have access to more debt so my debt wouldn’t increase. (Genuine question) Except you probably wouldn't. Also you'll be paying that rate of interest for a lot longer than working through paying off the higher rates quicker or transferring them to 0% as and when you can. Just take a look around for the usual sorts of interest rates available on loans at the moment - then compare with what you are being offered. Fix the cause of the problem and stop the bleeding - don't just shove a patch over the whole thing and hope it holds...

I get the gripe with having £500 spending money but I live in a flatshare and am young so if I don’t go out I’m stuck in my room, which isn’t good for mental wellbeing. There is a whacking great difference between staying in 100% of the time and budgeting a sensible amount for entertainment. For what it's worth our household income is higher than yours, we have no debt and no mortgage and yet we don't spend anywhere near £500 a month on going out for meals or with friends! I’m trying to make this plan as sustainable as possible, not get debt free as quickly as possible. Otherwise I could eat noodles for a year and not leave my room and it’s be gone in a year. I appreciate that was a facetious comment but actually, it wouldn't...an economist, you say...? I have lots of weddings and other big events over the next two years that I need to plan for. Though I guess putting the money into an emergency fund could be used for that. You've not quite grasped the meaning of an emergency fund, have you... If you know you have expenses coming up, then budget for them - an EF should be sitting there waiting for a genuine emergency to crop up at which point it is worth its weight in gold!

Considered a debt management plan but given my debt repayments are affordable not sure I’d be eligible?! Also concerned about it impacting house buying prospects in 4/5 years time. I'd be more concerned about no prospect of having a deposit to buy a house in 4/5 years time,. If you get the debt gone in 2.5 years, then potentially that's a £36 K deposit you could save over the following 2.5 years, bringing you to the 5 year point in a far healthier place

Thanks.

ryanm8655 wrote: »

Thanks for the response.

My job is more secure than a job with the police and my pay would be guaranteed in the unlikely event I was made redundant. But I get your point, perhaps I’ll have an accident and be unfit for work for two years or some other shock event... Now you're thinking sensibly.

Get the point re: loans too. But if I do just chop the cards up and close them then it makes financial sense in terms of lowering the interest rate. Not sure why I won’t be able to get the Zopa loan though? The interest rate is high but lower than my cards. Higher than SOME of the cards. What about the 0% ones though - by the time they are taken into account is it still lower? Also as you pay off more debt, you will have more options to transfer the remainder to 0% also - you need to take that into account.

I don’t think my level of debt is ok, it’s ridiculous and means I won’t be buying a property anytime soon. I may come across blas! but I’m not, I wish I’d made alternative choices but the fact is I didn’t so all I can do is fix it now...hence making this thread. Exactly - so fix it, don't just kick it down the road by consolidatingBut I’m not going to get depressed about it Please don't make flippant comments about depression - debt genuinely CAN cause all sorts of mental health problems, as many on here are well aware, and it's not something you can control or decide not to suffer from., what is done is done and depression only leads to buying things to make yourself feel better... I appreciate your point re: credit cards...I’ve got myself debt free in the past and fallen back into the trap having not closed down cards and had a couple of lavish holidays...I’m determined that that doesn’t happen again. I’m older and wiser now and most importantly happier...

Definitely won’t be living the same lifestyle, at the moment I pay my minimum payments plus a little bit on a couple of cards. My current lifestyle is just about within my means No - your current lifestyle is well within your means if you currently have £1230 over after paying your regular outgoings! and £500/month would be a significant compromise lifestyle wise, it really doesn’t go far in London. Nice try - I'm a Londoner and while I live outside now, I still work there and spent an appreciable amount of social time there too. It IS possible to live in the capital without having to live a jet set lifestyleBut I accept and understand your point...long term I want to save and get on the property ladder so will have to compromise on lifestyle for that too. Just want something sustainable to start with, which also allows me to make a good debt in my debts. I’d be happy to knock £10k off this year but ideally would like to do £12k.

Fair point re: emergency fund. The only reason I wouldn’t bother with a savings account is that the interest rates are poor and I’d be better off ploughing the funds into debts as the interest rate is higher. That is absolutely true but ONLY when you take an EF out of the equation - you are correct about not putting aside regular savings while you have debt on higher interest, though.But perhaps it is worth considering to get myself into the habit of saving.

Apologies if I am coming across as a nob, honestly not meaning to be but have thought about things a lot before coming here. I appreciate all advice/opinions.

You need to remember that all the people here explaining why consolidation is unlikely to work for you are saying it from a position of either having been there themselves, or from seeing others on here returning time after time having consolidated, then increased the debt again. If you genuinely want to get on the property ladder in a few years time then taking on a loan now which means paying off for more years than just clearing the debt would is not a good way of going about it.

Step 1 - learn to budget. Saying "this is my outgoings, but then there's this, and this, and that..." is not a budget. The SOA calculator is your friend. Fill it out, then go over everything and make sure it's accurate.
Step 2 - keep a spending diary. Make a note of everything you spend, then see what you're spending in various categories. So a £100 night out once a week? That's over FIVE THOUSAND POUNDS in a year. Or to put it another way, not far off 20% of your debt. A coffee and a sandwich every day at work because you can't be bothered bringing food from home? Probably about another £1600 across the year. Start putting what you're spending into context, and suddenly the figures start to look a bit more scary. Similarly you're probably underestimating your spending on clothes etc, from the amount you've suggested there.
Step 3 - work out where you can make any savings either on outgoings or on your debt repayments - things like buying train tickets ahead of time, rather than on the day, or shuffling a card to a 0% deal, for example. The thing I suggested earlier about setting minimum payments to a set amount, also can have a surprising impact over time.

Learn some financial lessons now rather than looking for an easy route out of things, and you'll be learning lessons that will serve you well for the rest of your life. However, to learn the lessons you need to start from the beginning, and actually deal with things.