Working our way through this. Any advice welcome

Gingerhead

Good evening everyone.

I am looking for some advice and guidance regarding our debt problem.

We are a married couple of 40 & 41 with two lovely kids. In 2017 my wife had to stop working suddenly. I won't go into what happened, other than to say that it was a horrible set of circumstances beyond out control and there was no option for her to continue working. This meant that our household income halved. We already had some debts at that point and in hindsight we should really have entered a DMP. We didn't expect my wife to be out of work for more than 6 months so we decided to soldier on, using what remaining credit we had to plug the gaps. We were around £500 per month short of what we needed to pay our bills and living costs. My wife ended up not working for two years so the debt increased considerably. I am not strong enough to post a SOA at the moment but I will do this as soon as I can. I will share that our debts are considerable and over 60K. We also have a mortgage of around 65K. We have never missed a payment on anything.

My wife returned to full time work in September 2019. Had this not happened we would have needed to enter into a DMP or IVA. We now find ourselves in a position where we can comfortably afford our debts, bills and living costs.

The problem we have is that all of our 0% credit cards have reverted back to standard APR's. This means that each month we are paying around £550 in interest alone. We are not able to secure any more 0% deals due to our high credit utilisation and poor affordability.

We have discussed what we should do and have also spoken to Stephchange. THere are 4 possible options, however we feel that the first three are inappropriate -

1 - Enter into a DMP. Stepchange have said that this would be pointless as we can now easily afford the payments. Creditors would not be obliged to freeze the interest and charges.

2 - sell our house. We have over 100K of equity, however we would then need to rent. I am not convinced that we would ever get back on the property ladder. I am also not keen on renting as our current mortgage is finished in 10 years. We pay £600 per month so it will cost approx £72000 for the remainder of our mortgage. To rent a similar house in this area would cost around £750 per month and we would probably have to rent until we die! Let's say I live to 85. this would mean about £400,000 in rent payments!!!!

3 - Remortgage the house. We are not keen on this route as the house is our security. We know how circumstances can change quickly and I do not want to be in a position where we can't afford elevated mortgage payments. I am also not convinced that we would be granted a remortgage based on our current finances and level of borrowing.

4 - overpay and try to forget about this interest until new 0% deals become available. I think that we both know that this is the only sensible option. We have worked out that we can afford to throw 2k per month at the debt, This means that about £1450 will come off the balance based on our current interest rates.

I would welcome any advice or thoughts. I do appreciate that we are lucky to now be able to afford to pay our debts, the interest just feels so soul destroying and we are so embarrassed. We don't know anyone else who is in this level of debt.

One glimmer of hope is that we have a loan ending in 11 months. This will free up £248 per month that we can allocated to another debt.

Any thoughts or ideas would be gratefully received.

Thanks

Rob

Willing2Learn

How much do you owe in total for your unsecured debts? (You could withhold payments to theses creditors for six months, so that all the accounts are defaulted. An account recorded as defaulted will automatically have interest and fees frozen. Once the accounts have been defaulted, you could then enter into a DMP).

Generally, it is not recommended to convert unsecured debt, into debts that are secured against your home.

If you want good advice, then you will have to post up your SOA, as that will provide us with a comprehensive list of your income, expenses, debt and assets.

Gingerhead

HI

Around 64K for unsecured debts - quite a lot I know.

I will do a SOA, I just can't face it tonight.

our new combined income if £4900 per months. mortgage/utilities/childcare//fuel all come in at £1800 per month. Minimum debt payments are £1509 and food is £280

The remainder can go towards debts and also building up some emergency savings.

onwards&upwards

I think your instinct not to sell the house is sensible, there is more value in a secure home than just the ££ it’s technically worth, especially with children.

I remortgaged to pay off credit card debt. It was right for me but it’s not right for everybody, and most on here will be dead set against it.

How secure are your jobs?

clairebeth

I know someone wiser than me will come along soon, but your last option does indeed seem the most sensible.

I appreciate you don't want to post your SOA, but have your done it just to see for yourself how much you should have leftover for debt repayments etc?

Then, look up about Debt Snowball. As you say, as each debt is paid off, you funnel that money onto the next debt and it 'snowballs' ahead.

Another thing to do is to look away the Old Style board on here and try and cut costs by batch cooking and making/ mending for yourself.

Google Dave Ramsey also. He's an American, and religious which can be a bit off putting, but he talks about the seven steps to financial freedom, including saving an emergency fund and snowballing your debts. A lot of people in both America and the UK have found him really helpful. Gee has a radio programme which you can see on YouTube.

All the very best.

zippygeorgeandben

'We now find ourselves in a position where we can comfortably afford our debts, bills and living costs.'


But no one knows how long this will last. If you can find a positive in the strife which has gone before you, it is that you have truly learnt the value of money. Go for option 4 - throw everything you can at the debt. Don't be embarassed. Just make sure you and your wife are in it together and start hammering away at this debt. It will start to feel much better all round.
Good luck and keep us posted.

Moneyminded

Rather than throwing everything at the debt right away continue to pay all the monthly minimums and set aside a starter emergency fund of £1,000. That way if anything unexpected happens you have a little safety net so you don't need to use more credit.

Once you have your emergency fund start throwing whatever money you have at clearing the debts. Is any of the debt an overdraft? If so, have you factored in that the charges will likely be changing in April.

It sounds like you and your wife are working through this together and have a plan to resolve it. Good luck with your journey to debt freedom.

EssexHebridean

It's great reading that you and your wife are clearly working on this as a team - well done for that and it will make SUCH a difference.

one small thing that you can do - are you currently paying credit cards off at minimum payments each month aside from the highest interest one that you are throwing all the overpayments at? Either way - any cards which are NOT currently being used (hopefully all of them!) you can set the monthly direct debit payment to a small amount above the current minimum (so if the min payment would be £97 - maybe set it to £100) then just leave it running at that amount. This means that the payments don't fall off over time, and it also makes it easier to budget as you know the exact amount that will go out month on month. the biggest advantage is that by doing absolutely nothing extra, you pay off a little more from the balance each month. Two things though - you MUST only do this with cards you're not using, and it pays to keep a careful eye on any correspondance from the providers as just occasionally they can change minimum payments (ie increase them) and then you could get caught out by having the set payment in place.

Also sit down and have a think about how you can increase the surplus you have to overpay each month - at the moment you are fully motivated and enthusiastic for dealing with this so hit it as hard as you can while that is the case. (Allowing for what is said above about an Emergency Fund and overdrafts)

Good luck!

Cynical_Monkey

It's difficult to formulate any kind of definitive plan without a clear idea of the outgoings and rates being paid but some very simple sums shows an interesting option that may work for you;

Looking at option 3 specifically... Based on the figures you've given, I estimate that you have £60,000 remaining on your mortgage and have a current mortgage rate of 3%. With £100,000 in equity, you have a LTV of 37.5%

If you were to increase the borrowing by say 15,000 and cut your mortgage rate to the current 10-year fixed rates available (around the 2% mark), your monthly payments would increase by about £90 and you'd still have the 10 year security that you currently have.

The £15,000 instant cash would clear some of the high interest credit and in theory, also allow you to move some of the current debt to 0% deals as the credit utilization would be a lot better.

Combine this with option 4 and you're 18 months away from having everything cleared at which point, you can overpay your mortgage to avoid the increased interest costs from carrying 15k extra over 10 years.


As a slight aside, I was almost exactly where you were 10 years ago but without the security of the house... It's a hard journey but it's definitely one worth taking as a couple.

sazaccount

I really think that snowballing your debt is the best way to go, as others have suggested.

Grab a large, coffee/tea/beer, pen & paper:

Start off with 3 months worth of bank/credit card statements and write down where EVERYTHING is going/has been spent on filling out a realistic SOA, then the real work of working out where things can be cut down/out can come from. eg 40 a month on coffee on the way to work, pull out a reusable mug and take from home - an extra 40 to debt.

Work on an emergency fund - some say to build this first but you may be able to do this over a couple of months with also over paying.

Then write down all of your debts one of 2 ways personally I preferred the largest APR to smallest (the MSE method) this makes sure you pay the least amount of interest possible OR writing them smallest to largest (Dave Ramsey method) this is more physiological, being able to pay of and close accounts and see that achievements.

There is a snowball calculator link somewhere on here, which will show you how much, how long etc

middleclassbutpoor

Looks like you have had some sound advice.

I don't think the DMP is a choice and Im not a fan of making unsecured debt into secured debt regardless of how it may feel more affordable. You are one step away from losing the house if you were to get any more significant bad news which impacted your income.

My view would be to work through it and ignore the interest rates. Do the Baby Steps that Dave Ramsey promotes.

Step 1- Get £1k emergency fund

Step 2 - Get your unsecured debt repaid - gazelle like. I laugh at this phrase but basically sell everything to the point where the kids think they're next. Basically - generate cash wherever you can - increase income, sell unwanted items etc.

Step 3 and beyond what you need to know now but follow the above.

When you feel upto posting a SOA - the suggestions for trimming down your expenses will no doubt happen. Its going to take a little while but focus on paying smallest balance to largest and just keep going. You may find opportunity to reduce interest rates along the way but depending on your income, it may not be worth doing if you can clear a debt in a short space of time.

If you get your head in the right place, I think you will blast through this and be glad for not securing the debt or going into an IVA. Both of which are not easy solutions to deal with mentally either.