Help needed to break cycle of debt

TW82

Hi Everyone
I've struggled with debt all of my adult life. I consistently have got into debt and have struggled to get out of it time and time again. I keep it to myself to the detriment of my relationships and my mental health. It's a cycle of behavior  I'm committed to stopping and I'm going through talking therapy to help with this. 
Looking for advice on the best ways to clear my outstanding debts which I will detail below. 

I have in total £13,108 of debt. Made up of the following 

multiple credit cards debt of 10,914

overdraft of £2,194

£7,700 of the above figure is on 0%  interest until Jan/Feb next year. 

This leaves £5,500 which is on a higher rate of interest, 

I applied for low interest personal loan of 13k to clear everything and to aim to have a manageable one monthly payment. The loan comes out at £209 a month over 87 months at a rate of 8.9% annually. So I will be paying £4,571.96 in interest. Is this a good interest rate? 

Another option is to add additional borrowing to my mortgage. Natwest can offer the 13k tied to the term of my mortgage (30 years) and monthly payments would be between £65-71 a month. Fixed for either 2 or five years . I recently remortgaged to a 5 year fixed term . 

My wife has recently been made redundant, so I'm the main breadwinner in the house now. So the lower payment from my mortgage provider is alluring (I know I will end up paying more in the long run) due to the fact our living expenses are quite high (Mortgage 2 small children - 1 in childcare, expensive London commute from Brighton, lease car etc). 
I really want to clear this debt but also need the repayments to be manageable so this doesn't happen again.  

I'm open to any suggestions and thank this lovely community in advance for your expertise 

On_my_way

Your wife will probably need to find another job quickly and/or find a job that means your total childcare bill is lower.

leninspot

Hi there - as someone who hasn't always been good with money I won't attempt to advise you specifically on that. I'm sure someone on the site who is competent will come along with good/sound advice. What I would say is to be very careful when it comes to more borrowing & you would, I think, be well advised to speak to StepChange or National Debtline & maybe consider a Debt Management Plan - they're good. Other than that I'm glad you're getting some therapy - serious debt can ruin your life & it's important you find a way of sorting yourself out in that regard. Keep posting here - you'll get plent of help. Good luck.

DrEskimo

TW82 said:

Hi Everyone
I've struggled with debt all of my adult life. I consistently have got into debt and have struggled to get out of it time and time again. I keep it to myself to the detriment of my relationships and my mental health. It's a cycle of behavior  I'm committed to stopping and I'm going through talking therapy to help with this. 
Looking for advice on the best ways to clear my outstanding debts which I will detail below. 

I have in total £13,108 of debt. Made up of the following 

multiple credit cards debt of 10,914

overdraft of £2,194

£7,700 of the above figure is on 0%  interest until Jan/Feb next year. 

This leaves £5,500 which is on a higher rate of interest, 

I applied for low interest personal loan of 13k to clear everything and to aim to have a manageable one monthly payment. The loan comes out at £209 a month over 87 months at a rate of 8.9% annually. So I will be paying £4,571.96 in interest. Is this a good interest rate? 

Another option is to add additional borrowing to my mortgage. Natwest can offer the 13k tied to the term of my mortgage (30 years) and monthly payments would be between £65-71 a month. Fixed for either 2 or five years . I recently remortgaged to a 5 year fixed term . 

My wife has recently been made redundant, so I'm the main breadwinner in the house now. So the lower payment from my mortgage provider is alluring (I know I will end up paying more in the long run) due to the fact our living expenses are quite high (Mortgage 2 small children - 1 in childcare, expensive London commute from Brighton, lease car etc). 
I really want to clear this debt but also need the repayments to be manageable so this doesn't happen again.  

I'm open to any suggestions and thank this lovely community in advance for your expertise 

It's great you are taking the steps to help you manage your finances better.

Whilst it's tempting to look at consolidation loans (either unsecured, or secured on your mortgage), the general advice is to not do it. The main reason is that logically, you cannot borrow your way out of debt. You will have to make changes to either your income or outgoings. Unless you address this, consolidation is likely to lead you to an even worse position down the line where you run up more debt on top of the consolidation loan.

Considering much of your credit card debt is 0%, I would also advise against it on the principle that it does not make financial sense.

What you need to do is address your living expenses. There will be some aspects that are unavoidable, like mortgage and commute costs. But a lot of aspects of your budget can be cut, particularly things like car leases! This is even more pertinent given your wife's employment situation.

I would urge you to go over your spending from the last few months (as well as any annual costs and divide them up as a monthly cost, such as insurance) and put together an accurate and detailed account of where every £ currently get's spent from your income. 

Using this calculator is very helpful: https://www.lemonfool.co.uk/financecalculators/soa.php

Try and be as accurate as you can. Once you have a good idea of what your current spending is like, you can then look at places where you can make cuts, and perhaps decide if you need to look at debt payment arrangements.

It's then about knuckling down and using every bit of surplus income to pay down each debt individually as fast as you can. Psychologically, it can be worth going for the smallest debts first, regardless of interest levels, as this can give you the psychological boost that you are making progress and focuses you on paying the rest.

Hope that helps, and best of luck!

monetxchange

The above is great advice. Just to add: don’t even consider adding it to your mortgage. This is a manageable level of unsecured debt and making it into secured debt that could put your home at risk is not a good idea.

TW82

thanks for all the advice. 
My wife is currently starting her own business so she will be contributing ££ into the household. But will obviously take a bit of time to get going. It's worth noting that I'm not in arrears or have any missed payments. We should be able to survive off of my salary (I earn £75k)
I agree that it's sound advice to look at spending and where one can reign it in . Sadly, my family do need a car so the lease here really does need to stay as getting rid would mean that we need to buy a car anyway. My lease is only 160 so it's not the end of the world. 
I also totally understand the reticence of adding this borrowing onto the mortgage as it makes it secure and home is at risk. The offer of borrowing is with my current mortgage provider. Having said this , if I didn't pay my mortgage my home is at risk anyway... and upping the mortgage payments by £60-70 wouldn't hurt us as a family financially. Especially during this time when my wife is getting a business up and running. This is why it's so tempting I suppose. Is it 100% a no no or can it sometimes make sense to do this? A lot of people borrow on the house to extend etc , so I suppose it's the same as that? 

I suppose another option is to balance transfer the higher interest rate of debt onto a new credit card with 0% . I have a 'very good'  credit rating according to experian (which took me years to get to) so I should be able to get approved ? This does leave the overdraft of 2.5k open though which is one I definitely want gone. 

I generally make bad money choices so your advice is really welcomed.

DrEskimo

TW82 said:

thanks for all the advice. 
My wife is currently starting her own business so she will be contributing ££ into the household. But will obviously take a bit of time to get going. It's worth noting that I'm not in arrears or have any missed payments. We should be able to survive off of my salary (I earn £75k)
I agree that it's sound advice to look at spending and where one can reign it in . Sadly, my family do need a car so the lease here really does need to stay as getting rid would mean that we need to buy a car anyway. My lease is only 160 so it's not the end of the world. 
I also totally understand the reticence of adding this borrowing onto the mortgage as it makes it secure and home is at risk. The offer of borrowing is with my current mortgage provider. Having said this , if I didn't pay my mortgage my home is at risk anyway... and upping the mortgage payments by £60-70 wouldn't hurt us as a family financially. Especially during this time when my wife is getting a business up and running. This is why it's so tempting I suppose. Is it 100% a no no or can it sometimes make sense to do this? A lot of people borrow on the house to extend etc , so I suppose it's the same as that? 

I suppose another option is to balance transfer the higher interest rate of debt onto a new credit card with 0% . I have a 'very good'  credit rating according to experian (which took me years to get to) so I should be able to get approved ? This does leave the overdraft of 2.5k open though which is one I definitely want gone. 

I generally make bad money choices so your advice is really welcomed.

Given this statement at the very start of your post:

TW82 said:

Hi Everyone
I've struggled with debt all of my adult life. I consistently have got into debt and have struggled to get out of it time and time again. 

Yes, consolidation (particularly through your mortgage) is a massive no no. Remember people borrowing to renovate their house are doing it on the basis that the value of the house will increase by a similar/greater amount. In your case, you are simply adding to the mortgage. You are needlessly prolonging the payment of this debt, paying masses of interest along the way and running the very real risk of not addressing the problem with your financial management and being in the same position in few years, but now with a higher mortgage, or another loan as well. The concern is that it will feel psychologically like you have made massive strides in tackling the problem, but in reality the issues still remain.

Whilst your income is high, at the moment you are the only person working, so relative to couples with two incomes are probably around average whilst your wife's business starts up.

Without seeing you budget, it's very difficult to advise further.
Where is all your money going?
Why do you not have surplus to save at the end of each month?
What is the debt paying for, just routine overspending, or specific high price items?

I would certainly look at 0% balance transfers to reduce the debt on the interest bearing debts, but much like the consolidation route, it's not addressing the actual issue. The issue isn't the interest. The issue is overspending.

My advice would be to have a look at Dave Ramsey's baby step plan: https://www.daveramsey.com/dave-ramsey-7-baby-steps

The first thing is to get a handle on your spending, and then get a written budget where you are spending less than you earn. Once you crack that, the rest will follow suit.

Willing2Learn

I agree.  Consolidation can only be done successfully, if the borrower has fixed all the weaknesses of their monthly budget that caused the debt in the first place.  But then if you have done your SOA, you should be able to identify the structural weaknesses within your budget, so that you can snowball the debts instead of consolidating.

onwards&upwards

NatWest won’t let you borrow extra on your mortgage to consolidate debt that is currently at 0%.  They will only do it if they can offer you a better interest rate than you are currently paying. 

I did consolidate on to my mortgage, it was right for me, I am now saving at a better interest rate than I am paying on my debt.  I was advised against it here though and I would say it won’t work unless you have 100% addressed the underlying cause for the debt and well and truly learned to budget. 

I advse filling out a SOA and posting it here, warts and all.  Also, sign up for a month’s free trial of YNAB (you need a budget, excellent budgeting app that I use most days) and take it from there. 

enthusiasticsaver

If you have struggled with debt for a long time I strongly urge you not to consolidate or add borrowing on to your mortgage. If the biggest percentage of your debt is 0% it makes no sense to move that to 8.9% and adding to your mortgage risks you losing your home should you be unable to pay the bigger mortgage. Your problem is living within your income so you either need to cut costs or your wife needs to bring some income in whether that be weekend work or evening or working from home. 

theoretica

What are you currently paying on your debt and by how much are you in the red each month?  What would you need to change to continue paying your debt as it is?   Also, being honest with yourself, do you know exactly why you got into debt?  Have you changed this reason yet?