Help with CC debt please (+ general advice)

Mr87

Hello everyone! Let's cut to the chase. I've tried my best to do a SOA based on three month's worth of expenditures (my finances are a bit jumbled which makes it time consuming - I'll come onto that):

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

 

Household Information[/b]

Number of adults in household........... 2

Number of children in household......... 3

Number of cars owned.................... 2[b]

 

Monthly Income Details[/b]

Monthly income after tax................ 3083

Partners monthly income after tax....... 0

Benefits................................ 130

Other income............................ 0[b]

Total monthly income.................... 3213[/b][b]

 

Monthly Expense Details[/b]

Mortgage................................ 1069

Secured/HP loan repayments.............. 0

Rent.................................... 0

Management charge (leasehold property).. 10.42

Council tax............................. 198

Electricity............................. 40

Gas..................................... 40

Oil..................................... 0

Water rates............................. 37

Telephone (land line)................... 0

Mobile phone............................ 12.5

TV Licence.............................. 160

Satellite/Cable TV...................... 8.99

Internet Services....................... 25

Groceries etc. ......................... 524

Clothing................................ 0

Petrol/diesel........................... 260

Road tax................................ 31.25

Car Insurance........................... 54.7

Car maintenance (including MOT)......... 129.6

Car parking............................. 20

Other travel............................ 0

Childcare/nursery....................... 103

Other child related expenses............ 0

Medical (prescriptions, dentist etc).... 13.33

Pet insurance/vet bills................. 0

Buildings insurance..................... 13.9

Contents insurance...................... 0

Life assurance ......................... 35

Other insurance......................... 7

Presents (birthday, christmas etc)...... 83

Haircuts................................ 14

Entertainment........................... 490

Holiday................................. 264

Emergency fund.......................... 0

Outdoor memberships..................... 22

Account fees............................ 2

Professional membership................. 25.6

Charity................................. 10[b]

Total monthly expenses.................. 3703.29[/b]

[b]

 

Assets[/b]

Cash.................................... 1361

House value (Gross)..................... 342000

Shares and bonds........................ 467

Car(s).................................. 2000

Other assets............................ 1322[b]

Total Assets............................ 347150[/b]

[b]

 

Secured & HP Debts[/b]

Description....................Debt......Monthly...APR

Mortgage...................... 189472...(1069).....3.29[b]

Total secured & HP debts...... 189472....-.........-   [/b]

 

[b]Unsecured Debts[/b]

Description....................Debt......Monthly...APR

Amex (pay in full).............311.4.....10........22.9

Balance transfer card..........9522......95........0

Halifax........................975.......10........20.2[b]

Total unsecured debts..........10808.4...115.......-  [/b]

 

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 3,213

Expenses (including HP & secured debts). 3,703.29

Available for debt repayments........... -490.29

Monthly UNsecured debt repayments....... 115[b]

Amount short for making debt repayments. -605.29[/b]

 

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 347,150

Total HP & Secured debt................. -189,472

Total Unsecured debt.................... -10,808.4[b]

Net Assets.............................. 146,869.6[/b]

 

[i]Created using the SOA calculator at www.LemonFool.co.uk.

Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

I appreciate the above does not make for pretty reading but there are some mitigating factors.

RE employment: I'm on a £52,200 salary (0.9 of FTE @ £58,000), so part-time. This was to take on a small amount of childcare responsibility (2 and a third on the way) and allow my wife some productive time. I also generate some other income c. £2,900 over past year (net) through moonlighting through my own limited company, but I have not included this in the above calculation as it is EXTREMELY variable. I try to think of it as windfall and try not to let it influence my purchasing decisions... (although I'm sure it impacts me on a subliminal level).

I'm not going to pretend I wasn't fast and loose with CCs, but around £6k of CC debt relates to furnishing our new house after a move just under 2 years ago. That said, I know culturally I've not been good managing money and this is because in the past we didn't have to - my wife used to work in financial consulting and with our respective salaries (>£100k combined) we had an extremely good standard of living. It got me used to piling £000s on CC and worrying about it later. However, my wife was forced out by her employer around the time of the birth of our first child and she hasn't worked since then. That was a tough time for us. Also, around the time we moved, I only had my own business to go on, which from earlier numbers you can understand didn't amount to much. It's not a full excuse, but it explains our position a bit more. I've made some vast improvements but we need to go further.

Further context in terms of the numbers, this time last year -

Equiv. unsecured debt this time last year: £8,600 (so has increased by c. £2,200 over the past year).
Equiv. secured debt this time last year: £195,988 (so reduction by c.£6,500 over the past year)

The other thing I'll say about above numbers is that it includes some small-ish business expenses e.g. fuel that I can claim back on, and it's quite conservative as it's based on 3 months' worth of expenditures, which includes Christmas. It's taken some time to put this together, but I know the estimates can be improved. But I'd rather be conservative than be over optimistic and fool myself.

Plans -
Staycations from now on. 
Fewer trips by car (although we live in rural area so it's hard to cut down substantially)
We already use budget supermarket for grocery + clothes generally from Tesco, charity shops and the like. But we can probably go further still.
Fewer coffee shop trips / lunches (under 'entertainment' above)

My wife in her 'productive' time is writing a novel, this has been years in the making. She's in the process of editing it. I am a firm believer she will make a success of it, but publishing is a fickle world. It's completely unclear what could be expected from this so I can't factor in a specific income, not in the short term. But I wouldn't want to derail the dream!

Our mortgage deal expires in Jan '21, at which point we'll have 19yrs left. There's scope for our mortgage repayments to reduce. The 0% BT expires in three tranches, May/June/July '21. I'm 33 and my wife is 34, I do have some further earning potential but don't want to assume anything on that front. And I don't want to fall into the trap of rolling all the CC debt into mortgage ... I want a plan.

Some help / advice very gratefully received. I shall try and furnish with additional detail as needed.

Willing2Learn

Hi Mr87 and welcome to the forum 


My thoughts on your SOA:


Are your council tax payments spread across 10 or 12 months?

Are your water rates payments spread across 10 or 12 month?  And is it metered?

Your groceries monthly expenses is very high.  Have you considered batch cooking?  Have you considered shopping at discounters such as Aldi or Lidl?

How come the money you spend on car maintenance is so high?

While you are working on reducing your level of debt, you could forego buying presents.  Just let your family and friends know that you do not expect to receive presents either.

Your monthly amount for your TV license is incorrect.  Should be approx. £12.50/month

Your SOA says you cannot afford to be spending so much on holidays and entertainment.  That is £750/month (or £9,000/year).  Is your holiday already booked?  If not, then I respectfully feel that this needs to 'knocked on the head' whilst you get a handle on your debts.

You need to be putting money aside every month toward your Emergency Fund.  There will be unknown expenses that occur from time to time.  You need to be prepared, so that you don't have to resort to lines of credit.

DrEskimo

I think you already know the issues. You are stuck in the spending habits you had when both you and your wife were working, and you haven't adjusted since she stopped working.

Logically you only have two options. She either starts working again and you factor in child care, or you have to dramatically cut your spending. Realistically, there is about £700ish you could cut from your SoA (namely entertainment, holiday and food), and you could go even further if you thought about going down to 1 car. Your mortgage rate is also relatively high, and you could do a lot better with a 55% LTV at current market rates. Mine is currently 1.44%.

But I still don't think that will leave much at all for your debt repayments, which looks like you are paying the bare minimum on?

Whilst it's admirable that you want to help your significant other fulfil her dream, I think she seriously needs to reconsider getting some sort of work, whether than be freelance or part-time, until you get this debt cleared and get back to a routine of following a strict budget that allows you plenty of surplus to increase your savings and think about investing for longer term commitments (moving house, replacing cars, university funds for the kids, retirement planning, etc. etc. etc.).

Mr87

Thanks for such prompt responses.

Are your council tax payments spread across 10 or 12 months?
It's 10 months, but I've taken the total cost and divided it by 12.

Are your water rates payments spread across 10 or 12 month?  And is it metered?
Non-metered, need to check RE 10/12 months.

Your groceries monthly expenses is very high.  Have you considered batch cooking?  Have you considered shopping at discounters such as Aldi or Lidl?
Yes now we do and we've been cutting right down, less meat/alcohol etc. Grocery does include clothes shoes etc as well (didn't get to splitting it up) but I know we can do better.

How come the money you spend on car maintenance is so high?
Two family cars owned outright, both 2007 reg. They aren't worth a great deal (high mileage) and both have had a few issues over the past year. e.g. both needed 2 sets of 4 tyres last year, both had exhausts replaced, and cheap it aint on the upside it should make this year cheaper, touch wood, but I'm keeping it under review. If it's untenable I'll get rid of one, or try to find a way to run 2 motors more cheaply.

While you are working on reducing your level of debt, you could forego buying presents.  Just let your family and friends know that you do not expect to receive presents either.
Good advice.

Your monthly amount for your TV license is incorrect.  Should be approx. £12.50/month
Good spot, I put in annual figure here by accident (based on last quarterly @ £40 x4). That makes the deficit a fair bit better... but obviously doesn't detract from the work that needs to be done.

Your SOA says you cannot afford to be spending so much on holidays and entertainment.  That is £750/month (or £9,000/year).  Is your holiday already booked?  If not, then I respectfully feel that this needs to 'knocked on the head' whilst you get a handle on your debts.
No holidays planned or paid for exactly for this reason. Last year we went to a holiday/family wedding abroad which was v expensive. It's fair to say there's some pressure/expectation on this sort of thing, given our history. If there's a next time, we'll just have to be honest and say we can't go...

You need to be putting money aside every month toward your Emergency Fund.  There will be unknown expenses that occur from time to time.  You need to be prepared, so that you don't have to resort to lines of credit.
That would be the ideal. Although I have been thinking about putting any spare cash into the interest bearing debts first, including mortgage which does allow for overpayment and conversely, payment holiday if we needed the cash for emergency (we're 100% up to date and have never had late payment on any debts). Do you have recommendations on what to aim for?

@DrEskimo
I agree with your assessment, and the route I'm going down first is to try and cut expenditure (hols/entertainment/grocery) as much as possible to get to a settled position. I am currently just paying bare minimum as you say. The mortgage coming down will be a big help, but I'm not relying on it to get to the balanced position first.

Thanks for suggestion on 1 car. I have seriously considered this, it would be a considerable knock on my other half's quality of life, so will try other things first and see how far we get.

I have mooted the possibility of my wife getting some work and I've been honest with her RE our position. She is open to it but we agreed to look at it a couple of months after #3 is born. Whilst obviously we have an agreement in principle - and we both know finances are a collective responsibility - it doesn't stop me from feeling guilty. On fulfilling her dreams - I know she'll do it, but if it has to be delayed... so be it.


You might wonder why I'm posting all this. It has been a burden and I know what needs to change. But being truthful - I need the encouragement, + any other tips to help get there.
Thanks

DrEskimo

Oh absolutely, regardless of whether she does decide to start another job to earn more money or not, you need to look at creating a new budget and cutting costs. I don't think she needs to abandon her novel by any means. I just wonder with her skill set whether she could bring in a fairly decent sum through freelancing. I personally used to earn around £75/hour and it was something I did evenings/weekends on the side of my full-time position. Granted, I don't have kids, but I think even a small amount of hours would help a great deal and could work around her current routine without much disruption.

I would suggest holding off on overpaying your mortgage. There might even be an argument to extending the repayment period alongside getting a lower rate. You earn enough on your own to borrow what you need. You could always make overpayments if you wanted to reduce it to the same term as it is currently, but it gives you that option to divert more funds to the higher interest debt. You can certainly get a rate much better, and that will knock ~£100 off the payment.

Mr87

Thank you. My wife will give it some thought . I think there's some reticence to go back into the field she was in, even on a freelance basis - it was quite niche and there's history there. But your comment prompted a thought to see if she can get freelance writing work. It won't be lucrative but some small £s will make a difference (zero marginal tax rate). Esp in combination with cost cutting. 

On the mortgage point. I had considered extending the term come Jan next year. I had also contemplated taking a payment holiday for 1 month, perhaps 2 to clear more of the cc debt before reapplying for a new mortgage deal. I have (perhaps an ill founded) fear that the level of cc debt might affect my chances. My other nag is generally... Generally... This isn't recommended as it is a get out (in the same way as rolling up cc debt into mortgage) 

DrEskimo

Mr87 said:

On the mortgage point. I had considered extending the term come Jan next year. I had also contemplated taking a payment holiday for 1 month, perhaps 2 to clear more of the cc debt before reapplying for a new mortgage deal. I have (perhaps an ill founded) fear that the level of cc debt might affect my chances. My other nag is generally... Generally... This isn't recommended as it is a get out (in the same way as rolling up cc debt into mortgage) 

I can see what you are saying, but I personally view it very differently to consolidation. You are both young and have the scope to pay off the mortgage before retirement age. I fully appreciate it will need thought as you are looking at a substantial increase in interest charges, but I think that even increasing the term by only a small amount would be beneficial. As I say, you can just set up a standing order to overpay at the same rate as a 19yr mortgage, so would be no worse off. At least it affords some flexibility to direct payments elsewhere in the short term.

You can see the effect of your debt on your mortgage affordability by using one of the online calculators. Look at what a lender may give you both with and without the debt. Even on a single salary, you are looking at only borrowing around 3.5x, so I doubt it would be an issue. Your debt levels are certainly not at what I would consider 'very high amounts'.

monetxchange

All great advice above. Just to say as someone with close experience with the publishing world, it's not only fickle, but extremely difficult to make a full time living out of. There's tiny margins in it now,  so there's not a lot of money being thrown at authors except if you're like Lee Childs. A large number of critically acclaimed authors in this country don't do it full time any more - it's done alongside the day job and teaching and holding workshops and appearances to make money.

I very much support the dream, but it's not something you can afford for her to be doing all day every day when she might do that for a year and only come away with a few grand (if she's extremely lucky enough to get published). She can write alongside work. Maybe work it so she can have one day off a week for writing or your take the kids for an hour a day etc to allow her quiet time. She needs to help dig you out of your debt holes too, and it's not the best time to give up work.

Mr87

Great further advice, thanks .

Monet (love the name , BTW) we could clearly have a whole separate conversation on book publishing! No, I do appreciate that writing is extremely difficult to make anything from, and we're under no illusions in that respect. The personal achievement of getting published, no matter how small / insignificant any book deal would be, is worth more than any monetary gain to us. The reason for supporting her so much up until now on that is a really personal one - I alluded to her previous work life, and it was not a happy place. She is far more talented than I. We've spent a little money on a self-editing course (writers workshop, now jericho writers) so she's serious about making it work. I know she will achieve something, but it's impossible to know what the something is!

Her looking after the kids is currently a full time job so she doesn't in practice get a lot of writing time. Soon to be 3, 1 and 0 to contend with. But if push came to shove, she'd get a job and we'd balance it with childcare. 

doraspenlow

Hi there. Our family position is similar to yours in many ways. My thoughts are that you guys shouldn't be expecting any income from your wife probably for at least the next year. Three children is a lot of children (lol) and, as you know, babies are hard work. Is there any way, though, that you can knock the £100 a month in childcare on the head? And/or consider upping your work hours back to full time.

Other than that, you know that it's the holiday and additional entertainment spends that are causing the ongoing issues. It can easily mount up. I don't know how old your children are, but there are lots of things to do that cost little-to-no money. How would your wife feel about making reducing entertainment and grocery costs her 'job' for a little while, rather than piling on paid work for the short term. Although, for what it's worth, I don't think your grocery bill is terrible at all (but I know that there are plenty on MSE who would disagree with me and can do much better).

You'll get a little bit more child benefit when the third comes, won't you? Although that may mostly disappear if you go back to a full time wage.

Mr87

@doraspenlow Yes, you're touching upon all the other things I've been thinking. It's obviously a matter of priorities for us (isn't everything?).

The child benefit. Yes we'll get a small gain that I haven't factored in. I haven't done the sums but as you say earning more on my side does have the drawback of an extremely punitive 'tax' rate. Me taking on FT would still be worthwhile and easily doable, but I have to balance that with the benefit and my ability to moonlight.

These comments really reinforce my thinking. It's encouraging as I feel I'm on the right path in terms of identifying the fixes. Just need to execute...