Finally admitting the truth!

Kelsey95

Hi all

My very first post is extremely nerve racking! I have decided that this is the year that I clear as much of my debt as possible! 

Myself and my boyfriend want to buy our own house by Christmas 2021 and my aim is to clear all of my debt by then! 

I currently have around £11,500 worth of debt that I have been accruing for a number of years. I am an impulse spender and this is a habit I really need to change!!! I am aware of this and it’s a hard trait to change but I understand that I need to stop buying things I don’t need in order to become debt free! 

I currently pay around £750 a month towards paying off this debt but I’m not eligible for any more 0% cards and I have 1 high interest CC and a high interest bank loan! 

Any help and advice would be greatly appreciated! 

middleclassbutpoor

Welcome to the forum and debt free board. 
Usual starting point is to do a statement of affairs (SOA) so others can offer insight into how you can make the most of your money. 
There are 3 ways to pay off debts 

1. Increase your income
2. Reduce your expenditure
3. Both of the above. 

If you are both committed to this journey, I am sure you can do it.  The first step to addressing any issue is to recognise the problem that caused you to get into this situation. Well done.  SOA link below. 
https://lemonfool.co.uk/financecalculators/soa.php
If you want some daily inspiration - google Dave Ramsey - you tube videos and podcasts will keep you firmly on the straight and narrow.  He is American but the 7 baby steps are sensible steps for you to follow. 

danfreestone

Going off the fact you want to buy a house Dec 2021 i am guessing you must have some savings between you and your partner. 
If its in a savings account it maybe worthwhile clearing as much of the debt as possible with the savings. This will help you save a lot of money in interest and also get you to knuckledown and save like made for the next 22 months going off your current debt repayments if you could clear your debts with savings you would have re saved £16,500 by the time you want to buy your home 

Galloglass

Before you pay off the debts ......

MCBP gives the correct advice about earn more, spend less but if you are making a financial plan for a mortgage you have to consider how to get a mortgage. Being debt free isn't a prerequisite.  

Firstly the cost of the loan is dependent on the LTV - loan to value ratio. The less risk the bank has the cheaper the money. To lessen the banks risk, you should have a larger deposit.

The second issue, is affordability checks. Yes the mortgage company will see your debts when they check and will deduct the cost of that debt from your income and not what they will lend. So to improve the level of your loan and what you can buy, you need to show increased income - limited by the deposit and the cost of the money.

Lastly you do need to know that you can keep to the plan. Potentially losing your home by not paying the mortgage should be a good reason to curb any spending impulses. 

You must master your debt and not be a servant to it.

tealady

Hi Kelsey
 A SOA is the place to start.
Sit down, get out all bank statements and credit card statements and go through them with a fine tooth comb.
The look at what you are spending money on and be brutally honest as to whether you NEED  something as against WANT something. 
Also look at what you are impulse buying. Can you live without it, cut down or get cheaper.
For example makeup can vary in cost, but if you must have your lippy check reviews to see if a cheaper brand is as good. Mags can be bought online, or agree a swap with a friend (perhaps each of you buy alternate issues).
There is a thread on these forums called "sneaky ways to save the pennies" have a look it might inspire you.
Good luck

middleclassbutpoor

Galloglass said:

Before you pay off the debts ......

MCBP gives the correct advice about earn more, spend less but if you are making a financial plan for a mortgage you have to consider how to get a mortgage. Being debt free isn't a prerequisite.  

Firstly the cost of the loan is dependent on the LTV - loan to value ratio. The less risk the bank has the cheaper the money. To lessen the banks risk, you should have a larger deposit.

The second issue, is affordability checks. Yes the mortgage company will see your debts when they check and will deduct the cost of that debt from your income and not what they will lend. So to improve the level of your loan and what you can buy, you need to show increased income - limited by the deposit and the cost of the money.

Lastly you do need to know that you can keep to the plan. Potentially losing your home by not paying the mortgage should be a good reason to curb any spending impulses. 

You must master your debt and not be a servant to it.

Agree that it's not a pre-requisite but I think that the approach of having no unsecured debt before buying a house is the best way forward - even if it means you have to spend another 12 months in rented. 

If they have the income for buying a house - £11,500 of debt should be easily cleared within 12-18months if focus is applied and they live frugally.  For me being able to know that your personal debt isn't holding you back in getting a house is really important. 

It appears that the high interest rates and inability to get 0% is what has caused the need to take action.  The 5 steps to house purchase would be for me; 

1. Save £1k emergency fund
2. Repay all unsecured debt
3. Save up 3-6 months of your monthly expenses
4. Ensure you are saving 15% of your income into a pension
5. Save for your house purchase. 

Buying a house can be expensive, running a house can be expensive and unlike renting where you have limited responsibility when things go wrong, I wouldn't encourage anyone to go into a mortgage carrying expensive debt or any debt if it could be avoided. 

Kelsey95

Thanks for all of the advice! 

Just as a side note, myself and my boyfriend currently both live with our parents paying minimal rent to them each and therefore are finances are not linked. My boyfriend is an extremely good saver and is also very good with money so I don’t want to be the reason why we can’t purchase a house next year! 

I previously bought a house in 2016 with an ex partner and it was at this time that I got into a lot of debt - he lived away and I was paying a lot by myself. Including the furnishing of the house! 

I currently have savings of £5,000 for a house deposit however when I sold the previous house I gave all of this money to my parents so that I wouldn’t fritter it away hence why I cannot use this money to pay off my debts. 

I will definitely look into Dave Ramsey and also into completing an SOA. As a ball point figure my income is around £1310 a month, I also sometimes get some additional part time work in my aunties business however this is not always guaranteed. 

My aim is to go into buying a house with no debt if this is possible. My wages would be more than enough for me to live off if I did not have debt! This is the main reason I want to get rid of it. 

EssexHebridean

I think you need to do that maths relating to the 5k you have in savings and whether you would do better clearing any debts that are currently charging you interest. You say you can't use it for clearing debts but that's not true is it if it is still your money - the way I read your post is that your parents are looking after it for safekeeping? 

Get the SOA done as first priority and let's take a look and see what we can suggest. 

middleclassbutpoor

So the maths are (as guestimates); 

£11,500 into a debt snowball using £750 - this will take you about 16-18 months I guess. 
£11,500 less £5,000 = £6,500.  Using the £750 a month on this... around 9 - 10 months
If we work on 10 months using the savings versus 18 months. 
If you continue the £750 saving for the 8 months - you will have £6k in savings  so that could be by August 2021.  If you continue to save until December 2021 - That is another £3k on top - so £9K to put towards you house purchase. 

If you don't use your savings, you would be at £8k so there is around £1k difference in using the savings. 

My recommendation would be to do a debt snowball calculator and make the above figures more accurate by plugging in your debt info. 
https://lemonfool.co.uk/financecalculators/snowball-calculator.php

Kelsey95

middleclassbutpoor said:

So the maths are (as guestimates); 

£11,500 into a debt snowball using £750 - this will take you about 16-18 months I guess. 
£11,500 less £5,000 = £6,500.  Using the £750 a month on this... around 9 - 10 months
If we work on 10 months using the savings versus 18 months. 
If you continue the £750 saving for the 8 months - you will have £6k in savings  so that could be by August 2021.  If you continue to save until December 2021 - That is another £3k on top - so £9K to put towards you house purchase. 

If you don't use your savings, you would be at £8k so there is around £1k difference in using the savings. 

My recommendation would be to do a debt snowball calculator and make the above figures more accurate by plugging in your debt info. 

Thanks for providing this link middleclassbutpoor! 

I will look to get this calculator completed later on today and I will let you all know how I get on! 

EssexHebridean, my parent won’t give me the money back as they see it as house money and tbh I would rather not use this if I can avoid it as then I know I have a definite £5000 saved. 

I do have 0% credit cards so it is only the CC card and loan that I’m currently being charged interest on which is a slight relief. I am hoping that once my car is paid in August my credit rating will be slightly better and I may be able to get another 0% card to transfer! 

EssexHebridean

Kelsey95 said:

middleclassbutpoor said:

So the maths are (as guestimates); 

£11,500 into a debt snowball using £750 - this will take you about 16-18 months I guess. 
£11,500 less £5,000 = £6,500.  Using the £750 a month on this... around 9 - 10 months
If we work on 10 months using the savings versus 18 months. 
If you continue the £750 saving for the 8 months - you will have £6k in savings  so that could be by August 2021.  If you continue to save until December 2021 - That is another £3k on top - so £9K to put towards you house purchase. 

If you don't use your savings, you would be at £8k so there is around £1k difference in using the savings. 

My recommendation would be to do a debt snowball calculator and make the above figures more accurate by plugging in your debt info. 

EssexHebridean, my parent won’t give me the money back as they see it as house money and tbh I would rather not use this if I can avoid it as then I know I have a definite £5000 saved. 

Except if you're paying interest on debts, effectively you don't have £5000 saved - that amount is being eaten away in real terms by the interest you'r paying each month... Paying the debts off sooner will get you to a position where you are able to buy your longed for home that much sooner, also. 

And how your parents see the money is irrelevant - it is your money, and you are free to do with it what is best for your finances and your own future.