Seeking advice on low level debt cycle

MidsHollie

Hi there,
I have spent most of my adult life in a state of what I would call ‘low level debt’. Firstly, student loans and some credit card debt from university. Then a bit more credit card debt and a loan for a car. And now, in my early thirties, a mortgage, help to buy loan, a bit of family loan for buying the house and the need for a new car, and some credit card debt.
I currently spend most of my day to day spending on cashback credit cards. (which I pay off in full each month). I’m pathologically disorganised, so tend to spend on 3 different cards and constantly pay off the full amount of those, however it does contribute to me feeling like I never have a solid grasp of my incomings and outgoings. I want to stop spending on at least two of these, but actually maybe all three for a while just to help my understanding of my spending. I have a 0% balance transfer on another credit card, which also has a little bit of debt at the higher rate. I would like to get all of this paid off ASAP.
I’ve tried doing a statement of affairs, but I have no handle on what I actually spend, other than the direct debits I pay each month / year. I do know that most things are the lowest they can be (eg. Phone/TV/broadband package, mobile phone, subscriptions etc). The list of debts are below:
Mortgage: £627 per month
Car loan: 9800 – paying £300 per month
Help to buy: approx. £5000 – will start paying interest in 4 years time
Family Loan: £20000. No payments made to this or “due date” as such. But I’d like to save towards this and the HtB loan as quickly as possible to have the money available if needed
Halifax CC £2398 – min payment £34,but regularly over pay (whilst concurrently occasionally spending fairly big chunks on it eg holidays, large household bills etc)
Barclays CC approx. £800 paid in full each month
Cap 1: £400 paid in full each month
Tesco CC: £300 paid in full each month (note credit card bills higher this month due to a holiday and other large payment on card, balances on these 3 will drop once statement balance paid off the bottom 3 cards)
My main aim is to get a good handle on my spending, so that I know where my money goes each month. My secondary aim is to pay off credit cards and car loan ASAP, and then start saving to be able to pay towards the family loan and Help to buy loan, and eventually to be overpaying on my mortgage.
I plan to do this by writing down everything I spend, on everything for a three month period, to get a good idea as to where I’m spending. I want to do a proper SOA that includes things such as accurately worked out annual payments over a monthly period. I also know that I need to cut down my spending to get out of this constant debt trap and give myself some wiggle room financially.
Any other advice or suggestions for my situation would be welcome.

MovingForwards

Keep a spending diary and log everything you spend.

Consider paying cash for everything, it hurts when you see physical money disappearing.

Leave you cards at home so you can't use them.

What I used to do was work out my monthly income, put that on a spreadsheet, write down all the bills / debts / other outgoings and see what that left me each month, divide that by how many weeks were in that month and take that figure out once a week, when it was gone that was it until taking out money the next week; if there was money in my purse when I was due to take money out I used to take out less.

A working example.... £1000 pm - £600 bills etc = £400 left pm, ÷ 4 Fridays in the month = £100pw

You can get a handle on it, once you get into the swing of things.

theoretica

You can get a decent handle on where your money has been going by sitting down with all your card and bank statements for the last 3 or 6 months and putting every single spend into a category. There will probably be a bit you spent in cash, but I would guess not that much.



I strongly suggest no holidays unless you have budgeted and don't need to put any money on cards. It might help focus your mind on keeping track of things.

getmore4less

^^^^^^
This but do 12 months

Allocate all 12 months income to categories where it went

Spending diary will help confirm where it goes but does tend to start the process of change

Do a plan of where you want the next 12 months income to go.

enthusiasticsaver

Spending diary.
Budget and save for things like holidays, large household bills instead of putting them on the credit card.
Stop using the cards and allocate monthly money to food, fuel, cars, gifts, entertainment etc etc.
Emergency savings account so you are not tempted to put more bills on credit cards.

Honestly using credit cards for all your expenditure only works if you are disciplined or have a very large income and live comfortably within it. What advantages are you getting from using 3 cards to pay for all your outgoings? That sounds a chaotic way of managing a budget.

ratrace

sell the 10k car that will wipe a good chunk from the debt, and buy a cheap small toyota

EssexHebridean

Something that jumped out at me in there was your comment about "the need for a new car" - and yes, I get that you might have needed a car of some sort, absolutely. Indeed Martin even categorizes a reasonable loan for the purchase of a "needed" vehicle as "good debt" I believe. However, I have my doubts that you "needed" to spend nearly £10,000 on a car, allowing that you also have the debt kicking around. And let's be honest about this - excluding the Mortgage & HTB the debt currently stands at in the region of £34k doesn't it. To me, that's not "low level" at all, that's a quite significant level.

First thing to do I'd suggest is to stop describing yourself as "pathologically disorganised" - you're not, that's an excuse. I know this because I've been there too. I realise now that what I actually meant when I said things like "Oh I'm really disorganised though" or "I've always been bad with money" was "I'm a lazy moo and it's easier to make excuses than to put the work into changing things" - and that was a hard lesson to take on board. So - stop making excuses and start taking control.

Right now - cut up two of those credit cards you're spending on each month, AND the one with the rolling balance that you're only making minimum payments on. Personally I'd be inclined to pop the remaining card in a drawer at home somewhere to leave it for emergency use only too. As others have said, start using cash for stuff - you notice it going out more when it's "actual money".

Start budgeting - clearly you have enough income that at the moment the wheels are staying on - but I suspect it might not take all that much to change that - which is why you need to start sorting things now. That SOA you've started doing? Go back to it, armed with 12 months worth of card and bank statements, and actually finish it. Look at home much you've actually spent in each area through the year and then decide on areas where that spending can be cut - those are the savings you will be putting towards paying down the debt sooner.

If you want a holiday next year, work out what it will cost, work out how you can keep those costs to a minimum, and then work out how much money you need to pop aside each month to cover that cost. Budget for everything else too - car maintenance, presents, haircuts, clothing. From now on if you want to spend money on something it needs to be thought about, budgeted for and saved for ahead of time.

You absolutely can get to a point where you are in control of your spending and money, rather than it feeling as though it controls you - we went from a similar sort of position to you above, to now being entirely debt and mortgage free, and with a decent chunk of savings behind us too - it CAN be done, but you have to want to do it, not just want to talk about it. (We did several years of doing the talking not doing thing before we knuckled down, too).

MidsHollie

Hi All,

I realise that it looked like I did a post and run, but I didn't, I've been processing your advice and doing something about my situation. I thought I would pop back and say thanks and post an update.
- I've kept a spending diary since I've posted.I know this doesn't reflect my past spending, but it does give me a picture of now, and can help me reflect on where I waste my money
- I've set up a budget as best I can for now, based on annual payments from the last year and expected payments for this year. I've done this with YNAB - I wouldn't normally use a service like this, but I got a 1 month free trial and then I can use the software free for a year as a student (part time student, full time employed). Once the 13 months are up, I hope to be fully in the swing of budgeting and will set up my own spreadsheet.
- I took the cards out of my purse in the first instance and haven't used them at all this month. I will cut up the Tesco, Cap 1 and Halifax cards after payday
- I've switched energy tariff which is predicted to save £200 per year
- I've flagged up an error on my water bill which should get me a dropped bill and a small refund
- I've siphoned off petrol, groceries and eating out budget in to my monzo account in to separate pots. Every time I go to spend now,I have to pull the money from the pot. This has made a huge difference to how much I spend and will in future allow me to plan ahead.

Going forward, once I'm paid this month, I will put aside money for annual expenses - insurances, maintenance etc in to a separate saving account and keep putting groceries, fuel and dining out to my monzo pots.
Thanks for all of your help. You really did help me face up to the severity of my debts and put me on a good first step to addressing the issues that have caused them and an action plan for the future

fatbelly

Perhaps you'll post your soa at some point?

https://www.lemonfool.co.uk/financecalculators/soa.php

When you do, also do a valuation of your car on Parkers Guide. Some posters have assumed you are driving 10k car, which I suspect is far from the truth. Make sure the aprs of your various debts are listed too.

Why are you cutting up your Tesco card? If you are using it to pay for groceries etc and do shop at tesco then the clubcard points are worth having, unless you have a better way of paying by card.

EssexHebridean

Echoing what fatbelly says about the cards - you said you spend on cashback cards for routine spending and then clear those every month? as long as you're not paying interest then that's a brilliant way of making cards work for you, rather than against you!

The assumption about the car came from the original post I think:

Car loan: 9800 – paying £300 per month

Brilliant progress overall there though. Be cautious about starting off budgeting using an app to do it for you - the risk there is that because you don't fully understand the mechanics of it in the same way that doing it "hands on" and manually would teach you, if anything goes wrong you won't be so fast to pick up on it, and then potentially won't find it so easy to work out the background on when you DO pick up on it. I'd personally always advocate learning how to do it manually first, and then automating it.

Stick at it - it really does sound like you're doing so well!