Paying off debt ... then taking out a loan...

Jigglebiz

Seeking advice about prioritising debt payoff, and find myself in a position where I also need to take out more debt for something else.

Current debt:
Car - hire purchase. £6060 over 29 months remaining at 6.7%, £210 pcm.
Credit card - £2700 at 0% expiring in Aug 2020. Currently paying £100 pcm and intend to balance transfer at end of term to another 0% card.
Mortgage - £89k over 25yrs at 2.2% fixed for another 4 years.

Current savings:
£5000 emergency fund
£1400 renovations fund

I’ve requested a settlement figure on the car and it’s £5600 saving about £500 of interest. I think I’m going to pay this off and leave around £800 for an emergency fund I will then top back up to £1000.

Bought the house 6 months ago. Have a large amount of equity (£200k+). Is a project and we have done the most urgent things but now need £20k to do remaining work that we can’t do ourselves - face lifting kitchen, flooring throughout, remaining decorating, window maintenance, converting an outbuilding, removing unsafe/leaking additions, secure front door etc).

I have plotted out the house renovations and have about £12k worth to do in 2020 and another £10k the year after.

Household income is c.£35k. Pretty secure jobs. My salary is set to increase by about 40% in 2 yrs but will aim to work part time so income likely to stay the same. It is a safety net if needed, I could earn more.

Have looked into personal loans and considering a £20k loan over 7 years, would be £250-300 pcm depending on whether I get the 3% rate.

I’m reluctant to get a loan, but am living in a half finished renovation that is very depressing and needs sorting ASAP. We bought the house knowing all this, and nearly went for a finished house instead that we could have bought outright. But because we’d have needed to move from it within 5-10 years due to space, garden, etc, we ended up going for a more expensive property in a much better location that needed work.

Do my plans sound sensible and anyone have any other suggestions for moving forward? I want to avoid debt but can’t see how we can in this current situation so it’s about managing it carefully. Thanks

fatbelly

So you're going to acquire the HP car for £5600. How much is it worth?

If it's worth a lot less than £5600 you may be better off just doing a voluntary termination under the consumer credit act and walking away from it, if you are at the halfway point.

You could then use less of your savings/emergency fund and would in turn need to borrow less.

If it is worth over £5600 then obviously settling the HP makes sense but you then have £5600+ tied up in a depreciating asset, and you could again look at downgrading. Lots of useful info available from the motoring board people.

Obviously use the eligibility soft search tool to check which of the low interest loans (if any) might be being offered to you.

The other thought I had is that you may want to post a statement of affairs, maybe on the debt free wannabe board. If you had £1k clear each month from your £36000 income then you may not need to borrow at all, as you would have your 22k available from your own income over the next 2 years.

Jigglebiz

Thanks for your reply.
I have only recently bought the car a few months ago (having paid £6k in cash and financing the remainder), it is essential for my work and I intend to keep it. So VT not an option right now. I am happy that it is worth over the settlement figure and don’t intend to change soon.

£35k is household income, my own share is £25k and this will rise to £40k in two years unless I opt for part time and stick at current income.

After the current debt I’m paying (£210 on car, £100 to CC) we have roughly £350 spare a month. This isn’t enough to fund the home improvements we need in time - think rotting windows, leaky roof etc. I am confident that the improvements we want to make will increase value (and then some...) in fact I’d do an extension if we had the income to raise the cash because it adds quite a premium to houses in the area. But we do intend to be in the house long term.

Jigglebiz

I have checked the soft search loan tool and says I have 90% chance of a loan at 3% over 7 years.

My other thought was an advance or remortgage, but looks like overall interest would mean much more expensive long term...

Affordability-wise my salary has already increased by £10k since we applied for the mortgage.

Jigglebiz

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 2

Monthly Income Details
Monthly income after tax................ 1592
Partners monthly income after tax....... 867
Benefits................................ 83
Other income............................ 0
Total monthly income.................... 2542

Monthly Expense Details
Mortgage................................ 468
Secured/HP loan repayments.............. 208
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 130
Electricity............................. 40
Gas..................................... 45
Oil..................................... 0
Water rates............................. 37
Telephone (land line)................... 8
Mobile phone............................ 26
TV Licence.............................. 13
Satellite/Cable TV...................... 0
Internet Services....................... 26
Groceries etc. ......................... 430
Clothing................................ 30
Petrol/diesel........................... 100
Road tax................................ 10
Car Insurance........................... 67
Car maintenance (including MOT)......... 100
Car parking............................. 20
Other travel............................ 30
Childcare/nursery....................... 40
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 42
Pet insurance/vet bills................. 0
Buildings insurance..................... 14
Contents insurance...................... 22
Life assurance ......................... 31
Other insurance......................... 0
Presents (birthday, christmas etc)...... 35
Haircuts................................ 15
Entertainment........................... 60
Holiday................................. 30
Emergency fund.......................... 50
Total monthly expenses.................. 2127


Assets
Cash.................................... 6400
House value (Gross)..................... 300000
Shares and bonds........................ 2500
Car(s).................................. 11000
Other assets............................ 0
Total Assets............................ 319900


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 89000....(468)......2.2
Hire Purchase (HP) debt ...... 6066.....(208)......6.7
Total secured & HP debts...... 95066.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Sainsbury’s CC AUG 20..........2750......18........0
Total unsecured debts..........2750......18........-


Monthly Budget Summary
Total monthly income.................... 2,542
Expenses (including HP & secured debts). 2,127
Available for debt repayments........... 415
Monthly UNsecured debt repayments....... 18
Amount left after debt repayments....... 397

Personal Balance Sheet Summary
Total assets (things you own)........... 319,900
Total HP & Secured debt................. -95,066
Total Unsecured debt.................... -2,750
Net Assets.............................. 222,084

Created using the SOA calculator at https://www.stoozing.com.
Reproduced on Moneysavingexpert with permission, using other browser.

katsu

We purchased a house that was a state and rather than borrowing extra money we have saved and done work. I do envy people who have nice houses and I do agree that it is hard to live in a house that needs work, however I do think fatbelly has made a great point about looking at your income and expenditure to see what extra cash you can free up. We focussed on doing what we needed to do to make our house livable in and have then saved up to do things to it over time. Some neighbours thought we must have sold the house to new people when we did the garden up years and years after moving in That was very funny to us.

If some of the work would not even be done until 2021, why would you borrow 20k now? I suggest you look at what it would be like if you could save money/borrow less as 7 years is a long time to be in debt and you are bound to end up needing to replace the car/do something else on the house in 7 years.

For us it has been worth the peace of mind to do our house up on a PAYG basis and pay off the mortgage first. Your preferences can be different but do think about whether you really need to borrow money a year before you need it or to borrow for so many years. Give budget trims a go first.

katsu

Jigglebiz wrote: »

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 2

Monthly Income Details
Monthly income after tax................ 1592
Partners monthly income after tax....... 867 any chance of increasing this?
Benefits................................ 83
Other income............................ 0
Total monthly income.................... 2542

Monthly Expense Details
Mortgage................................ 468
Secured/HP loan repayments.............. 208
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 130
Electricity............................. 40
Gas..................................... 45
Oil..................................... 0
Water rates............................. 37
Telephone (land line)................... 8 well done, a good price. Assume you do need this for your internet? We were able to get rid of ours with our fibre deal
Mobile phone............................ 26can you go SIM only? could save maybe £15 here as you can get deals for a fiver
TV Licence.............................. 13
Satellite/Cable TV...................... 0well done for not having this
Internet Services....................... 26checked you are on the cheapest deal?
See Martin's articles and cashback sites
Groceries etc. ......................... 430Shopping in Aldi and Lidl etc? I think you can get this down
Clothing................................ 30
Petrol/diesel........................... 100
Road tax................................ 10
Car Insurance........................... 67This seems very high for one car - checked out the best options?
Car maintenance (including MOT)......... 100For a new car, £1.2k a year?
Seems a high amount
Car parking............................. 20
Other travel............................ 30any way to reduce this?
Childcare/nursery....................... 40
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 42this seems a lot. Private medical cover?
Pet insurance/vet bills................. 0
Buildings insurance..................... 14
Contents insurance...................... 22combined these two seem a bit high.
I paid about £100 a year combined for mine and got cashback
Life assurance ......................... 31
Other insurance......................... 0
Presents (birthday, christmas etc)...... 35
Haircuts................................ 15
Entertainment........................... 60would you make some savings on the holiday and entertainment for a year?
Holiday................................. 30
Emergency fund.......................... 50
Total monthly expenses.................. 2127


Assets
Cash.................................... 6400
House value (Gross)..................... 300000
Shares and bonds........................ 2500could you cash these in?
Car(s).................................. 11000
Other assets............................ 0
Total Assets............................ 319900


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 89000....(468)......2.2
Hire Purchase (HP) debt ...... 6066.....(208)......6.7
Total secured & HP debts...... 95066.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Sainsbury’s CC AUG 20..........2750......18........0
Total unsecured debts..........2750......18........-


Monthly Budget Summary
Total monthly income.................... 2,542
Expenses (including HP & secured debts). 2,127
Available for debt repayments........... 415
Monthly UNsecured debt repayments....... 18
Amount left after debt repayments....... 397

Personal Balance Sheet Summary
Total assets (things you own)........... 319,900
Total HP & Secured debt................. -95,066
Total Unsecured debt.................... -2,750
Net Assets.............................. 222,084

Created using the SOA calculator at https://www.stoozing.com.
Reproduced on Moneysavingexpert with permission, using other browser.

You've got some great things going for you. I've given you some ideas where I would try and save. If you got your surplus up to £500, which wouldn't take much, then you have got your 20k in under 4 years, and that isn't allowing for your salary increases.

Be even more frugal and maybe you can pay for everything in under 3 years. Save all that interest and be debt free a lot quicker than 7 years.

I hope these ideas help. Good luck and happy new year.

fatbelly

I agree with Katsu. I also had a look at your soa and there is only one area that stands out as expensive ... car maintenance. You'd have to be a bit unlucky to need £1200 on that over the next year.

Other than that, it's just a case of looking at every item and seeing if you can shave a bit off. £10 here and there and eventually you've saved £100 a month.

All the tools are on this site.

Jigglebiz

Thanks for these ideas, I’ll have a go at reducing some of these costs and making trimmings to the budget.
Unfortunately the car maintenance is for unexpected costs and/or eventual replacement of my other half’s car (we have two due to both needing them for work). Change of job is planned for him over the next few years but not possible for now due to childcare and hours around my current work.
I’m in two minds about the loan vs saving. Agree I don’t necessarily need the whole bulk of the cash upfront, but if we borrowed say £10k now and then needed the same amount in a year, I guess as a seperate lower quantity the interest charges would be higher. We know the work we want to do and have quotes for everything.
I guess a compromise is to try and borrow over a much shorter period, paid off with strict budgeting and limit the work done by the trades to the absolute minimum.