Really needing help with debt spiral

jmb1

theoretica said:

jmb1 said:

MY SELF EMPLOYMENT £1,959.91*

BUSINESS OUTGOINGS MONTHLY
30% Tax savings -757.04
HMRC Payment Plan -732
PAYE employee tax -140.4
Accountant -52
TOTAL BUSINESS OUTGOINGS MONTHLY -£1681.44*

You don't earn £1959.91 from self employment - you earn £1010.47 and of that need to pay back £732 tax for the next 6 months or so.

Not sure I get you there. £1959.91 is my self employed salary after tax and NICs are deducted. It does make me realise however that in my budget in/outgoings total I'm therefore deducting tax from my outgoings twice. I think. 

True regards the 732 although Its actually over 12 months. This for me is causing the biggest cashflow problem as things stand. 

monetxchange

I’m not sure I understand how it’s self employment income if you receive a salary with tax and NI already deducted? How did you end up owing HMRC money then? I assumed you filled a self assessment tax return similar to most self employed people. That’s when (like me) you need to be putting away a proportion of your income each month for the tax bill.

benbay001

jmb1 said:

Drinks for Home -50
Drinking Out -200
Cigarettes -300 (I know, we're idiots, a no-brainer)
Shopping for Fun -50
Days Out -50
Caravan weekends -166
Caravan storage -35
Caravan Insurance -28

Total £829.
Thats a hell of alot to be spending on "fun" for one month when youre heavily in debt.
How much is the caravan worth?
I would look to get rid of the caravan. 
You can clear alot of debt with the money from a £5000 (a guess?) caravan, and as your caravan holidays are costing you £229 per month, not including the vans depreciation, maintenance or the interest that the money from the vans sale would save, surely going on "normal" holidays would work out cheaper anyway?

jmb1

monetxchange said:

I’m not sure I understand how it’s self employment income if you receive a salary with tax and NI already deducted? How did you end up owing HMRC money then? I assumed you filled a self assessment tax return similar to most self employed people. That’s when (like me) you need to be putting away a proportion of your income each month for the tax bill.

Sorry, "salary" as in that's what my accountant has told me my take home is from the profit, after tax/ni, on last year's return. It of course assumes the coming tax year will be approximately the same as last which aside from the unforessen is predicted.

I do indeed pay tax via self assessment and that is where I've come unstuck by stupidly not saving enough, can't pay tax bill and  used ccards. I realised having done it yet again this past year it can't continue hence the payment plan, and need to try and tackle the accumulated card debt, esp before it starts earning interest. 

jmb1

benbay001 said:

jmb1 said:

Drinks for Home -50
Drinking Out -200
Cigarettes -300 (I know, we're idiots, a no-brainer)
Shopping for Fun -50
Days Out -50
Caravan weekends -166
Caravan storage -35
Caravan Insurance -28

Total £829.
Thats a hell of alot to be spending on "fun" for one month when youre heavily in debt.
How much is the caravan worth?
I would look to get rid of the caravan. 
You can clear alot of debt with the money from a £5000 (a guess?) caravan, and as your caravan holidays are costing you £229 per month, not including the vans depreciation, maintenance or the interest that the money from the vans sale would save, surely going on "normal" holidays would work out cheaper anyway?

Yes agreed! as I said above, this budget is an honest guesstimate of what we *were* spending ie before the light bulb realisation and my seeking advice here. Yes, nearly all does inevitably have to be cut. Aside we hope from losing the caravan which will be our one and only luxury and can't bare to sell, albeit less frequently used (not 166 monthly any longer by any means) . My partner is adamant, and is getting a 2nd job to try to ensure that. 

DrEskimo

jmb1 said:

Not sure I get you there. £1959.91 is my self employed salary after tax and NICs are deducted. It does make me realise however that in my budget in/outgoings total I'm therefore deducting tax from my outgoings twice. I think. 

True regards the 732 although Its actually over 12 months. This for me is causing the biggest cashflow problem as things stand. 

So does your self employment mean you invoice around £2900 each month?

If so, then yes you are double counting by giving the net salary (£1959) and then also deducting the same fees again in the business section of the SOA.

craftingmad

jmb1 said:

4 credit cards & 2 loans (included in outgoings below): 
MBNA £3147.82 on 0%, ends August 2020, slightly above minimum at £50 pm.
Santander £5000 0% ends 07/11/2020. slightly above minimum at £50 pm.
Barclaycard £4050 on 0% ends 01/05/2021. slightly above minimum at £80 pm.
Virgin Money £3956.13 ends 25/06/2021. slightly above minimum at £40 pm.
1 Tesco Personal loan, £230 per month, £10000 owing. 4 years to run. 3% apr. 
1 PCP loan, £280 per month, £8000 owing. 1 year to run. £5k balloon payment. (I intend to pay that and keep the car, whether that’s by taking out a loan at that point or other means currently unavailable but might be by then).

Current incoming/outgoing budget: 

INCOME
MY SELF EMPLOYMENT £1,959.91*
MY EMPLOYMENT £1372
PARTNERS EMPLOYMENT £688.33 - is there anyway this income could be increased? Maybe overtime,  a part time job which fits in with existing employment, any skills which could be used to earn extra?  
TOTAL £4,020.24
*Self employment monthly average figure is skewed upward as actually have far higher sales over Christmas period nov/dec

HOUSEHOLD EXPENSES MONTHLY
1 payment plan with HMRC for £8k (set up early February after paying them £4k and rather than once again using a credit card to pay the shortfall of last/this year’s tax bill). (£732 per month- Included in business outgoings total)
Tesco Personal Loan Repayments -206.43
Northridge Car PCP Repayments -243.96 - as others have said hand back the car and gt a cheap run around until debt is cleared
Total Credit Card Repayments -272

Mortgage/Rent -390

House Insurance -31.88
Council Tax -106.6
Water Rates/Meter -38
Gas -55 - anyway to cut back on gas and electric? Seems high for two people especially as you seem to be out a lot? 
Electricity -55 - as above
Cleaning Products/Cleaner -10 - swap to cheaper cleaning products and get rid of cleaner - you simple cannot afford them at the moment. Maybe use this is a target to aim for again when you are out of debt to help keep you motivated
Sky Broadband, phone TV -65 - switch to freeview 
TV Licence -12.83
Mobile Phones (x3) -60 switch to basic sims and get rid of one phone altogether especially if it is for your 8 year old
Life Insurance -66 - very high - look at ways to reduce
Travl Insurance -1.6
Food and Household Shopping -400 - could easily be cut in half - switch to cheaperbrands and meal plan each week/month 
Eating Out -100 - simply cannot afford to do this at the moment
Coffees/Sandwiches/Snacks -50 - again cannot afford at moment - consider baking your own cakes for treats etc and pack up when out to save temptation 
Drinks for Home -50 - needs to be cut down not only as money does not allow but also for your health
Drinking Out -200 - STOP altogether - you really do not have the money to spend on this at the moment
Cigarettes -300 (I know, we're idiots, a no-brainer) - visit your doctor and get help to quit  
Car Maintenance -50 - this seems very high considering the car is on PCP? 
Car Insurance -40
Car Tax -17.06
Petrol/Diesel -150 - this is quite high? Do you travel about for work?
Child cash ISA -10 
School meals -50 - consider pack up as may be cheaper or look into seeing if free school meals apply 
IT/Computing (eg Anti-virus etc)-10 - free anti virus packages are available
Pet Food -31 - are they eating own brands - could save a bit
Shopping for Fun -50 - find a free hobby like walking or board games to keep you occupied
Days Out -50 - look for free days out like parks, museums etc 
Caravan weekends -166 - unfortunately not able to afford this at the moment
Dentist -30 - try to find an NHS dentist to hopefully save this expense? 
Barbers -15 - £15 a month for haircuts is crazy. Maybe not cut your hair so often or invest in a set of clippers?
Clothes -40 - shop your wardrobe instead of buying new
Son university fund -43.75 - could he help contribute to this by helping with the cleaning and saving the cleaner wage each month?
Christmas & Birthdays 125 - how many people is this for? That's a lot of money a month. Could you get cheaper gifts (some don't even need to cost money if you promise time etc) or cut some people out?
Amazon Prime/Music Unlimited -7 - cut one of the Amazon services out 
Amazon Kindle/Audiobooks -10
Magazines -3 - stop buying and read online instead or read at your local library
Caravan storage -35 I personally would sell the caravan whilst you clear the debt
Caravan Insurance -28 - as above
TOTAL HOUSEHOLD OUTGOINGS MONTHLY -£2,702.72

BUSINESS OUTGOINGS MONTHLY
30% Tax savings -757.04
HMRC Payment Plan -732
PAYE employee tax -140.4
Accountant -52
TOTAL BUSINESS OUTGOINGS MONTHLY -£1681.44*
*Business monthly average figure is skewed upward as actually have far higher sales over Christmas period

SUMMARY
Total household (2 adults, 1 8 year old) income £4020. 
Total outgoing household & business £5,106.55
Surplus: (Minus) -£1,086.31*
*Income/Outgoings monthly average figures are skewed upward as actually have far higher sales over Christmas period. But still, clearly a worrying exercise to see minus £1000 available.

ASSETS:
Mortgage fixed until Nov. 2020. Owing £66,600.
House value currently approx. 120k we believe, from online estimates.
 
Ultimately, the overall underlying reason / problem behind the credit card debt has been I’ve not properly budgeted and managed my savings for tax from self employment job for the past 4 years, each time choosing the apparent easy option of paying using a card cash transfer and then balance transferring ever since. I am totally aware that it’s critical I from now on save the full 30% of self employed income, and don’t borrow from it. Working with my accountant to ensure I do that.
We are totally aware that we are spending too much and having now done a recent budget with Debtline are working out where we’re spending too much and looking to cut right down to increase available surplus and cash flow. But this is looking impossible especially with the HMRC payment plan now absorbing a large chunk of income. Debtline seemed only able to help further by helping with talking to creditors on overdue payments (there are none) and freezing debt interest. So not sure that applies yet…
Other than recently HMRC payment plan, we have never been late or unable to pay any creditor payments, and though day to day cash flow is a problem, hopefully able to be fixed by cutting down expenditure. Credit scores are good. We believe our household income *should* be enough to continue paying loans whilst enough to live on, however we are aware the credit cards 0% are coming to an end starting this year and certainly want to avoid paying interest and the problems that will cause.
 
I clearly want to avoid getting to a point where we are in more serious trouble with creditors as can’t pay but also aware that with this amount of debt it will take a lot per month to manage it as things stand. So, looking for ideas, what to try to pay off first, cutback, whether further balance transfers whilst increasing card repayments as much as possible, or if there are any other little tricks I haven’t thought of! (Perhaps for example paying off the HMRC plan by some means over a longer term borrowing would be better, reducing the amount of that repayment which is decimating our cash flow). But yes I know, ‘never borrow to borrow more’. However I am still wondering about consolidating either with a loan or a mortgage as there's equity (though I know, that's turning unsecured debt into secured). I realise the danger that you can just slip back into bad spending but I feel I know where the card debt has come from.

I REALLY desperately need help and advice here. I'm not sleeping at night and by day am in constant worry so any help to get out of this is much appreciated. Please be gentle though!

Hope this helps. I think you need to use a snowball calculator so you can see exactly how much the eating out, shopping, caravan holidays etc are costing you. This could then provide motivation for you to help you cut out the unnessery spending and focus on the debt.  

jmb1

DrEskimo said:

jmb1 said:

Not sure I get you there. £1959.91 is my self employed salary after tax and NICs are deducted. It does make me realise however that in my budget in/outgoings total I'm therefore deducting tax from my outgoings twice. I think. 

True regards the 732 although Its actually over 12 months. This for me is causing the biggest cashflow problem as things stand. 

So does your self employment mean you invoice around £2900 each month?

If so, then yes you are double counting by giving the net salary (£1959) and then also deducting the same fees again in the business section of the SOA.

My problem is this. I am trying to work out my minimum likely self employment take home pay per month so that I can then see what surplus there is after all outgoings (with drastic cut backs on unnecessary spending), to then pay that surplus toward paying off debts. This generally seems a rationale approach? Rightly or wrongly, I'm going on the assumption that my sales will be roughly equivalent for this tax year as last.

So my annual take home pay (after tax, NICs and business expenses) for 2018/2019 was £23519, £1959.91 per month. HOWEVER. The problem is, my sales fluctuate, particularly at Christmas time (Nov & Dec) when sales increase substantially. So averaging the annual total per month as I am doing now, obviously inflates the monthly figures for the other 10 months Jan to Oct, giving the impression I have more income in those months than I actually do. So what is the best way to allow for this, so that I am budgeting using a more realistic monthly take home pay? Considering both tax and expenses also fluctuate considerably each month depending on sales, I don't know where to start to calculate the take home pay individually or do an SOA / budget for each month!

So far I've looked at overall sales figures for last year (i.e before tax nics, expenses) which are:

Sales JAN to OCT 2019 = £40,785.97, averaging £4078 monthly

Sales NOV to DEC 2019 = £17,920.35, averaging £8960 monthly.

Therefore an average percentage increase of 119% per month for those Christmas months. Could that be used, and if so how?

Otherwise can you give any pointers how I could go about this to achieve the original goal?

monetxchange

I understand - I spent years thousands in the hole with HMRC as I never saved enough as I was constantly playing catch up with debt so never did it. Your numbers regarding what you bring in each month are a bit scrambled at the moment. What I'd suggest is every time you have income come in each month, check out Martin's Income Tax Calculator. It'll tell you roughly what you need to put aside each month based on that month's income. It also has filters for student loans etc, so make sure you've set it right. Then simply put this money aside. This guessing about what you will earn is what's making you play catch up. If you calculate it as you earn it, you'll be one step ahead. You might even end up with leftover money when your payments on account and expenses are taken into account.

Another thing - not being rude, but your income isn't huge, so do you really need to be paying for an accountant? I don't use one, and I know many much higher earners than me that don't either. Self assessment, for all its faults, is pretty straightforward and if you put anything wrong in, they're quick to correct it. Just keep good records of your income and expenses and it should be easy to do it yourself. I can't see you're getting massive tax benefits from using an accountant when you're not bringing in loads. Which makes me question again whether there's any scope for increasing your business with a bit of hard effort instead of getting second jobs?

jmb1

monetxchange said:

I understand - I spent years thousands in the hole with HMRC as I never saved enough as I was constantly playing catch up with debt so never did it. Your numbers regarding what you bring in each month are a bit scrambled at the moment. What I'd suggest is every time you have income come in each month, check out Martin's Income Tax Calculator. It'll tell you roughly what you need to put aside each month based on that month's income. It also has filters for student loans etc, so make sure you've set it right. Then simply put this money aside. This guessing about what you will earn is what's making you play catch up. If you calculate it as you earn it, you'll be one step ahead. You might even end up with leftover money when your payments on account and expenses are taken into account.

Another thing - not being rude, but your income isn't huge, so do you really need to be paying for an accountant? I don't use one, and I know many much higher earners than me that don't either. Self assessment, for all its faults, is pretty straightforward and if you put anything wrong in, they're quick to correct it. Just keep good records of your income and expenses and it should be easy to do it yourself. I can't see you're getting massive tax benefits from using an accountant when you're not bringing in loads. Which makes me question again whether there's any scope for increasing your business with a bit of hard effort instead of getting second jobs?

Maybe it's my character but this for me is adding to my confusion and panic even more I'm sad to say. I certainly can't bare to consider not using an accountant; besides which they also do my (one employee) payroll as well as my books and returns etc all of which is way too much for my non-accountant mind and with so little time. For now I think i need to focus on one thing at a time and the priority is sorting my spending and paying off debt. I know my numbers are scrambled and I need help unscrambling them. Maybe its something I can consider once things are straighter but...