Want to be debt free...where to start?

Kiittykatz

I have used MSE for some time but never posted in the forum so not entirely sure if I am posting this in the right area.....please let me know if my post should be else where.

Anyway, on to the story I have spent most of my adult life in debt and I am sick of it. I am ready to work towards reducing and clearing my debt. I have looked at reducing outgoings have gone through each debt and secured interest free where possible or low rates. In fact my where to start title is slightly misleading but I still would love some direction on where to go from now.

I have what I call fixed payments that are via DD but also have lots of smaller debts such as arrears on water bill, service charge on my flat etc. I am not sure where to focus paying off. In my head the sensible me thinks reduce the debt with the most interest (currently that is a nearly 8k credit card with high interest rate). Then I think maybe I should get rid of the smaller debt to free up some of the monthly outgoings as they will be paid of quicker. Most of those are either no interest or utility arrears.

I would be interested in peoples opinions on how to tackle this.

Below is my debt - please don't judge, its crazy and in my opinion quite disgusting.

7847	Barclaycard
19625	Loan (lease extension on property)
6329	HSBC Loan
10594	Halifax credit card
1491	Hitachi Kitchen

900 - service charge arrears
300 water arrears
2000 - HMRC
My salary is £60k PA with sale earnings on top. These can be pretty sizeable - lets say on a good month which I will be having for the next 3 months around 2.5k take home per month. My husband clears about £350 per week 
I look forward to some sound advice and tips

Thanks in advance

enthusiasticsaver

Some of those debts are priority so arranging a repayment plan for HMRC, service charges and water arrears would be my first priority if I were in your situation. I would then tackle the debt with the highest interest. You have a decent salary so why do you think this debt has occurred? Posting an soa will get you more detailed responses. 

Kiittykatz

Thanks for the response.
The debt has occurred due to complete spending beyond my means. I have two children and my husband only started working recently so I have been supporting us all. I think part of it is also because I earn a good salary and work hard that I can spend what I like and 'deserve' the holidays, meals out etc because I work so hard.  I will look for the SOA.
Thank you 

Kiittykatz

Is there an SOA template with explanation on how to fill it out? Thanks

MidsHollie

Hi @kittykatz,
welcome to the forum. You have already made a great start! As above, do an SOA. It might be helpful to post it here too, as you may get some advice on savings you can make, or just some opinions about priorities etc! 

I agree with enthusiasticsaver, you need to pay your priority debts first; HMRC, water arrears and the service charge are probably your priorities. 

You have a good income, so if you really focussed, could probably pay it quite quickly. 

I’d be inclined to pay them from smallest to largest (after the priorities), as it can have some great motivational benefits. This is called a debt snowball. 

The debt avalanche method (paying debts in order from the highest interest rate first) will save you some money in terms of saved interest, but how much depends on your rates and how long it will take you to pay off. 

You need to set a budget, and try your best to stick to it. Zero based budgeting helps me to allocate the money I need for the month, and then all the rest goes to debt. 

I also follow a few accounts on social media that help keep me inspired and focused. I really like the finance bar and the money fox on Instagram 
good luck! 

Kiittykatz

Thanks MidsHollie
The snowball method I think suits me so I see reductions quicker and, like you say will give me motivation. Its interesting you have both called the water, HMRC debts priority where as I wouldn't of said that as I do not pay interest on them. My way of thinking is also down to (I am being honest) the lack of respect I have for money, the way I spend and the companies I owe it too. I am really trying to change this bad attitude.
I will get an SOA up.
Thank you so very much or taking the time to reply

Kiittykatz

Statement of Affairs and Personal Balance

 

Household Information

Number of adults in household 2

Number of children in household 2

Number of cars owned 2

 

Monthly Income Details

Monthly income after tax 3500

Partners monthly income after tax 1516

Benefits 0

Other income 927b

Total monthly income 5943b

 

Monthly Expense Details

Mortgage 977

Secured/HP loan repayments 6353

Rent 0

Management charge (leasehold property) 132

Council tax 112

Electricity 83

Gas 0

Oil 0

Water rates 25

Telephone (land line) 0

Mobile phone 10

TV Licence 132

Satellite/Cable TV 0

Internet Services 25

Groceries etc  400

Clothing 40

Petrol/diesel 114

Road tax 25

Car Insurance 0

Car maintenance (including MOT) 0

Car parking 7

Other travel 0

Childcare/nursery 900

Other child related expenses 0

Medical (prescriptions, dentist etc) 0

Pet insurance/vet bills 0

Buildings insurance 0

Contents insurance 0

Life assurance  0

Other insurance 75

Presents (birthday, christmas etc) 20

Haircuts 15

Entertainment 0

Holiday 0

Emergency fund 0

service charge 2nd property 168

storage 20

charity giving 13

car lease 156

Dentist 23b

Total monthly expenses 39885

 

 

Assets

Cash 0

House value (Gross) 620000

Shares and bonds 0

Car(s) 0

Other assets 0b

Total Assets 620000

 

 

Secured & HP Debts

Description                        Debt                     Monthly              APR

Mortgage                           221000                 977                       1.81

rental property mortg         216000                 635                       3.49

Total secured & HP debts 437000--  

 

Unsecured Debts

Description                                                      Debt                     Monthly               APR

HSBC Loan                                                       6329                     126                       6.3

Barclaycard CC                                                 8403                     178                       6.9

Loan                                                                  19625                   283                       6.9

Mum                                                                  4000                     0                            0

service charge arrear                                        935                       78                          0

water arrears                                                     300                       0                            0

Kitchen                                                              1491                     106                       0

Halifax CC                                                        10594                   109                       0

Total unsecured debts                                       51677                   881        - 

 

Monthly Budget Summary

Total monthly income 5,943

Expenses (including HP & secured debts) 3,9885

Available for debt repayments 1,9545

Monthly UNsecured debt repayments 881b

Amount left after debt repayments 1,0735

 

 

Personal Balance Sheet Summary

Total assets (things you own) 620,000

Total HP & Secured debt -437,000

Total Unsecured debt -51,677

Net Assets 131,323

 

iCreated using the SOA calculator at wwwstoozingcom

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

MidsHollie

Hi Kitty, well done on getting your SOA up. 

It looks like it could do with some adjusting, as the figures don’t quite add up (eg, tv liscence says 132, but I’m sure you mean £13.20). There are lots of round numbers here. Please try and make it as accurate as you can for the moment as it will help you figure out exactly what is happening to your money better. 

There are some things missing. If you have dependants and a mortgage, you really need to have life insurance. 

Your holidays, gifts and entertainment amounts are low or zero. You never go on holiday or for a day out? Is £240 per year realistic spending for gifts? 

There is nothing budgeted for car maintainence etc. 

What I would recommend is having a look over your spending for the last 3, 6, or 12 months, however much you can face. If you can’t face that, start documenting all of your spending from today. Allocate them out in to categories and your SOA will become much more accurate. 

You need to start some sinking funds for annual expenses. That way you can budget better and save on interest by paying things like insurance up front. 

There is a guy called Dave Ramsey. He has an ego the size of the country he is from and is a bit preachy and deletions. His advice can be a bit ‘broad brush’ but is a really great starting point. He suggests becoming debt free in a series of steps, by starting to save a $1000 emergency fund (that is only for emergencies!), then paying off debt by paying tree minimum payments on all debt but the smallest, and putting all other available money towards the smallest debt. Then repeating until all the debt is paid off. It’s the way that a lot of people on here are doing it. 

Galloglass

Do you need the BTL? Assume the BTL is generating about £300/m gross but unless you've got insurance, these can turn nasty quickly.

Kiittykatz

@MidsHollie thanks for the feedback. I did an mse budget planner a few months ago so will take the detail off there. You’re right some of detail is not accurate. Only put in the details that the SOA asked for which is a bit silly really ! Will look at Dave Ramsey’s suggestions. 

Thanks again

Kiittykatz

@Galloglass it’s a long story but I’m stuck with it for now.