Stress levels through the roof. - is this right

jenxter

Hello,

After years of bad money management I have finally faced to our debt problem. As it stands, we owe 69k in unsecured debts, on top of a 85K mortgage. Out debts are a mixture of credit cards and loans. All of our 0% deals expired a few months and ago and we cant get any more.

I have had a bit of a meltdown recently and feel like we are on the brink, although we have not missed any payments. Our spending has been out of control and we have just been disorganized and chaotic with our money.

I contacted stepchange this morning after doing the online debt remedy tool. The lady was lovely but explained that a DMP would not be suitable for us as we are able to manage our debt payments and other essential living costs/bills. After EVERYTHING is paid, we should have £718 that could be used for debt overpayments.

I am not sure if I am happy or sad about this. I liked the idea of entering a DMP and having 1 lower payments with no interest, however at the same time the fact that we are able to maintain the payment is a positive thing I guess! The lady explained that most of their customers are in the position where they are not able to service their debts at even the minimum level, which is obviously quite differ net to us.

Still can't help but feel a bit disappointed that we can't enter a DMP - do you think that stepchange gave us the correct advice?

[Deleted User]

If you're not missing payments and want to maintain some sort of credit file, then it's good news you don't need have a DMP.

[Deleted User]

jenxter wrote: »

Hello,

After years of bad money management I have finally faced to our debt problem. As it stands, we owe 69k in unsecured debts, on top of a 85K mortgage. Out debts are a mixture of credit cards and loans. All of our 0% deals expired a few months and ago and we cant get any more.

I have had a bit of a meltdown recently and feel like we are on the brink, although we have not missed any payments. Our spending has been out of control and we have just been disorganized and chaotic with our money.

I contacted stepchange this morning after doing the online debt remedy tool. The lady was lovely but explained that a DMP would not be suitable for us as we are able to manage our debt payments and other essential living costs/bills. After EVERYTHING is paid, we should have £718 that could be used for debt overpayments.

I am not sure if I am happy or sad about this. I liked the idea of entering a DMP and having 1 lower payments with no interest, however at the same time the fact that we are able to maintain the payment is a positive thing I guess! The lady explained that most of their customers are in the position where they are not able to service their debts at even the minimum level, which is obviously quite differ net to us.

Still can't help but feel a bit disappointed that we can't enter a DMP - do you think that stepchange gave us the correct advice?

If you have enough income plus surplus to service your debts then yes, Step Change gave you the correct advice. Your issue appears to budgeting, or rather a lack of it, and entering a DMP won't help you to sort that. Besides, a DMP is an informal arrangement with your creditors meaning they don't have to freeze the interest.

Put together an honest statement of affairs and if you don't know where your money is going each month then start a spending diary.

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

Then once you've got a handle on your finances start snowballing your debts with the surplus.

http://www.whatsthecost.com/snowball.aspx

phillw

jenxter wrote: »

I liked the idea of entering a DMP and having 1 lower payments with no interest

Everyone would. But it's kinda hard to argue that you need to be let off the interest because you can't afford it, when you can actually afford it.

You just need to prioritize your debts and start paying them off.

Willing2Learn

jenxter wrote: »

...I liked the idea of entering a DMP and having 1 lower payments with no interest...

The problem with this is that you would be breaking the terms of your original credit agreements. This would make it harder for you to get credit in the future, except from lenders who will charge you sky-high interest rates.

Edit: And welcome to the forum jenxter

SusieT

Firstly, where is the £700 odd going each month? You really need to find that as it will make a huge difference, so go through your spending from the last 6 months, and see if you can find it, then from now start a spending diary and write down absolutely everything you spend to see where its going. If you like the idea of just doing 1 payment, why not work out a budget for all your outgoings and then set up a seperate bank account for the debt payments? Set up a standing order for the first of the month (or whenever you get paid) of a set amount that will cover all the minimum payments plus a bit more to start paying them down from your account to go into it. Move the loan and minimum card payment direct debits to that account. Then you know that all the minimums are covered and at the end of the month you can pay whats left to the card with the highest interest percentage. As that debt starts to go down you will have more and more left to throw at it and can save hundreds of £ over time. The loans will look after themselves, and you only need to spend a short time each month making the extra payments.
I am guessing you do not have an emergency fund set up, so its also worth looking at that as a priority. Have it tucked away somewhere you will not be tempted to use it if you are a bit short one month so you cut back on your spending rather than use it as a fallback.

EssexHebridean

Welcome to the forum! Sorry to hear that you;'re struggling with the situation you are in but congratulations on realising now that there is an issue that needs addressing - that puts you in a truly fantastic position to be able to turn things around - so give yourself a big pat on the back for that!

As has already been said above your first priority is a budget - and the easiest way of starting off with that is to use the SOA calculator that has been linked to in an earlier reply. You can then if you'd like post that into here ("format for MSE" and paste it into a post in the thread) and then we can take a look and offer some suggestions about where you might be able to make savings.

You definitely need to track down that £700 odd pounds per month surplus as well - remember that is over EIGHT THOUSAND POUNDS a year - that is a LOT of money that could be used to make a huge impact on your outstanding debts. The other thing that surplus means is that you don't need to use credit at ALL - you just need to learn to manage your income more effectively, saving for the things that you need to spend on.

Once you've completed the SOA the other thing we'll be able to look at is how you might be able to manage things in order to make your debt payments more effective - we need to know about amounts and interest rates before that though. if you're not already a member of the MSE credit club (Free tio join) then get signed up for that as well as that's a great resource for helping you to learn more about your credit file and the possibilities of being eligible for 0% interest balance transfers, among other things.

Above all - don't despair - you really have tackled this at the right time to stop it getting any worse!

jenxter

I know that it makes sense as we can afford the payments, I suppose If I an honest I was just looking for an easy way out, although as some of you have pointed out, it would damage my credit rating etc.

At the moment our minimums are around £1400 and about £600 is pure interest which feels awful. I know that this will reduce if we commit to overpaying each month. It just feels like such a huge amount of debt and I feel overwhelmed by the scale of it.

I will do a SOA tonight when I am home. Basically we are a household of 4 - me, dh and 2 dc's aged 10 and 13. Combined take home pay is £4890 and after every single outgoing and saving a small amount for emergencies we should have £718 left over.

I suppose the fact that all of our 0% rates have expired means that our payments can't increase any further!!

[Deleted User]

jenxter wrote: »

I suppose the fact that all of our 0% rates have expired means that our payments can't increase any further!!

Unless of course they increase your APR, but make sure you close the card and and reject the increase if that happens.

EssexHebridean

jenxter wrote: »

At the moment our minimums are around £1400 and about £600 is pure interest which feels awful. I know that this will reduce if we commit to overpaying each month. It just feels like such a huge amount of debt and I feel overwhelmed by the scale of it.

For an easy win - on any cards that you're not spending on currently log in to the online account and set your monthly payment for a little above where the current minimum is - so if you have a minimum payment this month at £205.97 - set the payment for £210 for the future. That way you have the same amount leaving your account each month - which helps with budgeting, but also, it means you pay a little more off the capital balance outstanding each month as you're not affected by the natural "over time" dropping of the minimum. As an example of how this works - in March of this year I took out a 0% card to fund part of the cost of the replacement of my car. (The money was stashed in savings, I just didn't see the point in parting with it before I had to). The first monthly minimum payment was set at a little over £100 - so I set it instead to £105 and have left it set there ever since - aside from one month whether we threw an extra £1000 at the card as the result of a regular saver account finishing. The minimum payment NOW would be £68 if I'd just let it run - meaning over £30 LESS that I'd be impacting that card this month. Now for me that has relatively little effect as the money is there to just pay off when the 0% finishes anyway - but for someone paying down debt, that is a huge difference in impact - and the best bit is that you literally don't notice you're paying more! "Stealth debt-busting" - what's not to like about that?!

DD265

EssexHebridean wrote: »

For an easy win - on any cards that you're not spending on currently log in to the online account and set your monthly payment for a little above where the current minimum is - so if you have a minimum payment this month at £205.97 - set the payment for £210 for the future. That way you have the same amount leaving your account each month - which helps with budgeting, but also, it means you pay a little more off the capital balance outstanding each month as you're not affected by the natural "over time" dropping of the minimum.

I did exactly this on both my cards. I was focused on paying off the MBNA card and threw all my extra money at that, but rather than paying only £25 a month off my Barclaycard which is still interest free, I kept the repayments at £100, and now that balance is significantly lower than it would've been. I haven't missed the extra £75 because I've been paying that amount for months therefore I've 'never had it'.