Looking for opinions on how to tackle our debt

BabyStepper

Well done for getting the supermarket job - great move in very difficult times. This income gives you something to work with. 

Also to say about the £40k of unsecured debt through being unlucky with cars for 5 years, if your business cost you £40k in car expenses, then you needed to be looking at whether or not that business was viable, and the debt should be through your business accounts. With 2 cars jointly worth £4k, your HSBC loan (12.5k) looks like a debt consolidation loan rather than a car loan. If you're going to sort this out you will need to acknowledge that you've been living above your means for possibly quite some time, and that needs to stop. We've all been there, had the horrifying realisation that things we took for granted are not possible any more, but that's the reality. You need to stop using credit cards and taking out loans. 

Your budget looks aspirational (EF payments with no EF set up yet, for example). That's fine, but be aware the next few months are going to test your budget. It may be possible, it will undoubtedly need tweaking, but I'm right behind you in giving this budget a try. 

I've reorganised your debt in order of how to pay it off, basically the order of 0% deals ending -

Description....................Debt......Monthly...APR
Virgin Money CC...................4500......150.......0 (0% Nov 2020) Min payment is £45 but paying £150

OH Virgin CC...................1800......25........0 (0% Mar 2021)

OH MBNA CC.....................3800......40........0 (0% Mar 2021)

Tesco CC..........................7190......80........0 (0% April 2021)

MBNA 1 CC ........................7840......90........0 (0% Sept 2021) Min payment is £78 but paying £90

MBNA 2 CC.........................1290......30........0 (0% Nov 2021) Min payment is £25 but paying £30

OH HSBC Loan.....................12608.....316.......7.9 (Final Payment Nov 2023)

Total unsecured debts..........39028.....731.......-   

As already mentioned, you're right to focus on the Virgin card first. Even with the extra £133 thrown at it every month, this card will carry £3,400 -ish by the time the deal ends. If no deals are available then, your budget will cope with the interest. The real problem comes in March/April next year when you have almost £13k of deals ending within a couple of months. Your budget won't cope with this as it stands and you'll definitely be looking at a dmp or something else. So you probably need to decide if you want to go down that road now, or spend the next 9-10 months trying to get to grips with the debt yourself.   

If you want to try and sort this without a dmp, then I'd suggest a few things. 1) Get on your budget immediately. There's a ton of advice on here about living cheaply and making it work. 2) Did you buy anything of value that you can get sell? Any IT stuff, clothes, even old mobile phones, books, etc. Any big chunks of cash you can throw at the debt will help. 3) Can you or your partner or both of you get extra hours at work? Do anything and everything that's offered, send it all to the debt. 3) Sell one of the cars. As already mentioned, you can't afford 2 cars and selling one could send a chunk to the debt. 5) Sign up to Martin's soft credit check thing on here to follow when deals become available to you for balance transfers. If you're lucky enough to get any, close the previous card down straight away. 

You'd need to decide to go for the most frugal year of your life and see if you can make this more manageable. I'd love to see you achieve it and wish you the very best of luck with whatever you decide. Keep us posted.  

lisastevo

Many thanks for all of your replies and advice.

To acknowledge, we have £1400 in our Emergency Fund which I think is sufficient for now so could potentially put that monthly amount onto the debt. I have £4000 saved for my tax bill in January and hoping to not have to use it all. Will file my Self Assessment and do my accounts and then I’ll know what I have left to play with. With the severe drop in income this year I’m hoping to defer my payments on account that will be due January as I will not have earned enough this tax year to even be liable to pay any tax.

Since opening the thread I’ve had a contract worth £7500 of Self Employed work come in. The majority I can carry out from home come in so that will all pay down the debt. Because I haven’t worked this tax year because of Covid I won’t be liable for any income tax so will use that to pay down the debt. 

My husband has been furloughed since March, he will be returning to work in Sept. He has started doing small garden maintenance jobs, mowing lawns, tidying up gardens etc so that money is being thrown straight at the debt too.

Thank you once again for all your advice. 

Will just keep swimming 

BabyStepper

For what it's worth, I think you're right to keep swimming. Even if it doesn't work out, at least you tried your hardest. 

£1,400 sounds good for an emergency fund, for now. £35 per month will come in handy to overpay the cards. 

How long will it take to complete the SE contract? Hopefully you'll get it done before Easter when the rest of the cards come off their deals. 

You might want to do a new SOA to include your EF and also your husband's wage from September (is he currently on 80% wage), so you're clear about how to manage once that happens. Things are always the most difficult at the start. When I started paying off my debt I'd just switched to self-employment and had very little income. After the first few months of struggling, things got a lot better. Starting a debt free diary can be helpful to keep you on track.   

kimwp

I've never been self employed so this question might just be my lack of knowledge - how come you have 4,000 to pay tax in January but might not have to pay any tax? Do you not save the amount that will need to be paid in tax as the income comes in? If you don't need the 4,000 for the tax bill (and assuming that the rates once off the introductory 0% rate are similar), I would pay that towards the debt and put aside money for the tax man as it comes into your account. Clearly ignore this if it doesn't make sense.

I think there are three strategies you could adopt, the first two assume that the rates of the credit cards once the 0% introductory deals end are roughly the same, but depend on whether you can save the money into a pot and not touch it. (Which it sounds to me like you can)
1. If you can trust yourself not to use the money, then financially it makes the most sense to only pay the minimums while the cards on the 0% introductory offers and instead put the additional money you are currently paying (plus your "spare" money and any from selling items etc) in an easy access savings account - paying this towards a card as soon as it comes out of the deal period. For the target monthly savings, see the method in option 2.

2. The rates are pretty low, though, so if there is any risk you might be tempted to use the money, then I would adopt the following strategy to minimise the interest you pay:
With the VM account: deduct off the 4,000 (or whatever you don't need for the tax bill) from the 4,500 and divide the remainder (i.e. 500) by the number of payments before the 0% offer finishes. This is your monthly target to pay into the VM account. Pay the minimums for the other cards and use the additional money you are currently paying, your spare monthly money and anything else you can raise towards it. Anything above this target you can either use to pay the VM debt off sooner or pay above the minimum on the card that will expire next (if several cards will expire at the same time, pick the one with the highest interest once out of the 0%). Use the 4,000 or the amount of it that you don't need for tax to pay off the remainder of the VM card in Oct/Nov before the 0% offer expires. After that I think you are in "normal" territory of paying of debt with income - Dave Ramsey is highly regarded or focus on the card with the highest interest.

3. It's a different strategy if the interest rates are vastly different so that would be spreadsheet time!

But cutting back and trying to generate more income is vital to get you through this. It will be great to see how you get on.

lisastevo

kimwp said:

I've never been self employed so this question might just be my lack of knowledge - how come you have 4,000 to pay tax in January but might not have to pay any tax? Do you not save the amount that will need to be paid in tax as the income comes in? If you don't need the 4,000 for the tax bill (and assuming that the rates once off the introductory 0% rate are similar), I would pay that towards the debt and put aside money for the tax man as it comes into your account. Clearly ignore this if it doesn't make sense.

I put 30% of every bit of self employed income I get into a savings account to cover any tax bill I owe in January. For example if I get paid £250 for a job, I won’t think of it like that. I think to myself that’s £175 and £75 goes straight into savings and I forget about it. I do that for everything. So less personal allowance and business expenses I’ve always got money left after I’ve paid the bill. Plus being self employed for so long, over a certain threshold you have to pay in advance for the next tax year. So for example I’ve already paid £3000 towards my 2019/2020 tax bill that’s due in January 2021. They base it on the previous year. So that bill is covered already because I know what I made and the profit is roughly the same every year. I would then owe payments for 2020/2021 in January 21 and July 21. Because I already know I will not have earned enough to pay much tax for 2020/2021 because I’ll be under my personal allowance and minus expenses, I can defer the advance payments on account and not owe anything until January 2022. It’s so confusing. I hate it but over the years I’ve got better with my understanding and money management of my self employed earnings. 

kimwp

Thanks @lisastevo, that does sound fairly confusing, but you've explained it very clearly!

lisastevo

So I have a Barclaycard that I don’t use and I have an existing customer balance transfer promotion deal of 0% until November 2021 with a 2.4% transfer fee. Would it be worth doing that for the Virgin CC now? It may still be there come November but it may disappear. What you reckon? I’m still going to be actively paying down the debt but it gives me more wriggle room on time before the interest kicks in once it’s ran out. Just a thought 💭 

lisastevo

BabyStepper said:

For what it's worth, I think you're right to keep swimming. Even if it doesn't work out, at least you tried your hardest. 

£1,400 sounds good for an emergency fund, for now. £35 per month will come in handy to overpay the cards. 

How long will it take to complete the SE contract? Hopefully you'll get it done before Easter when the rest of the cards come off their deals. 

You might want to do a new SOA to include your EF and also your husband's wage from September (is he currently on 80% wage), so you're clear about how to manage once that happens. Things are always the most difficult at the start. When I started paying off my debt I'd just switched to self-employment and had very little income. After the first few months of struggling, things got a lot better. Starting a debt free diary can be helpful to keep you on track.   

Luckily my husband’s company have been topping up his salary so it hasn’t changed. Thank goodness.

The contract that’s come through is ongoing until March 2021. Payment will be split into 3 invoices each at £2500. One in September, one January and the final one on completion. This will be really good. I work in entertainment hence why I’ve taken a big hit. Fingers crossed will not be the only SE work that comes in and I can utilise all the money to pay down the debt. This supermarket job has been a godsend and has enabled me to cover my monthly outgoings leaving any potential SE earnings to pay down everything else. Plus with not travelling now I am saving on travel expenses and mileage so my car isn’t taking as much of a battering. This time last summer I was averaging around £400 a month on fuel! At least I’ve not been spending on my car and that will continue for some time as well which I’m pleased about.

BabyStepper

I have also experienced promotional rates that disappear for no reason so I would say, yes, use it now, give yourself as much breathing space as you can. How much can you move? 

BabyStepper

Also, great news about your SE income, just in time to hit those cards in March/April. You're doing great here, well done.