Refresh: My 6 year journey from -5 figures to +5 figures (it was 4 years, but I messed up)

ellipticalorbit

Hi everyone,

For the last 18 months I've just been trying to survive, pay a lot of tax bills that are due and tread water without having to consider going bankrupt. I've just been servicing my debt over and above this, always dipping into it and never reducing it - it was a problem for another day once the tax was dealt with. The sum of debt that's amounted over the last 5 years is huge, but I always had a huge income so never worried much about it and I never stopped to properly consider how much it's cost me in interest. That all changed when Covid hit last year and my income halved in the space of a fortnight. Still a very good income, but the level of debt now a significant worry but first I had to worry about staying afloat.

It suddenly hit me this week, I'd made a massive miscalculation in a formula in my budget spreadsheet, which had a £14k detrimental impact to my finances. I should have done my due diligence better and spotted it sooner. Sometimes you're just too used to looking at something to spot an error. I've been furious with myself, upset, exhausted but sometimes you need a big wake up call to look at the bigger picture. It's been a painful wake up call to suddenly realise, I actually do need a proper plan to clear the 5 figure debt which has amassed to £72k. It's not just going to clear itself magically, gradually without some proper action, a painful introspective evaluation and a complete change of behaviour. So this is the start of a 5 year journey to clear £72k of debt and save up 5 figures worth of savings. Will it be do-able? I think so - I have a plan. Will it be painful? Yes, almost certainly. Can I be diligent enough? Absolutely, I know my income and expenditure inside out now and have a very detailed weekly 5 year plan (well, actually 30 year plan but let's worry about the next 5 years first!)...

I'll be tracking progress and keeping myself accountable through this diary. So here goes:

Total debt (08/02/21) £72,379 (£5121 paid off of £77,500)
Breakdown:
Credit Card £52,033 / £52,500 - Utilisation 99%
Loan £20,346 / £25,000

Savings £0 / £20,000 (£0 net of future known costs)
EF £1,000 / £1,000

The plan is roughly as follows:
2021: Reduce all monthly costs, cut out all non-essential spending - Done. Clear all tax bills due and afford the essentials. Credit Cards: Cease all credit card spending immediately and permanently, which will reduce the balance per month and continue to make minimum payments which will start to chip away a small amount at the balances. Loan: Continue to pay the monthly payment which is doing a good job of reducing the value remaining

2022-23: Start to build a small nest fund to start paying off chunks into the credit cards in order of highest APR first (avalanche)
June 23: Reach 60% utilisation from regular payments plus paying off the largest APR in full
Dec 23: Reach 53% utilisation from regular payments plus paying off the second largest APR in full
Jan 24: Look to move remaining cards to 0% - lower APR % as soon as possible
June 24: Loan is paid off. Consider whether it'd be lower interest to consolidate remaining balances into a loan if credit report means it's an option by now
Aug 24: Reach 34% utilisation from regular payments plus paying off the third largest APR in full
Jan 25: Reach 27% utilisation from regular payments plus paying off the fourth largest APR in full
Aug 25: Debt free after paying off final remaining balance

Thank you for coming on the journey with me.

anjyeah

You seem like someone with a plan! All the best. 

Legs21

Good luck with your plan 🤞

Jamesyb123

Good plan looks like it’s just a case of time passing and you’ll achieve it well done and good luck 😊

enthusiasticsaver

Good that you have a plan and glad to see you have an EF. Are you still repaying a tax bill? Is that in addition to the £72k or on top of? 

ellipticalorbit

Thanks everyone, I appreciate the positivity and support!

@enthusiasticsaver, yes - I thought the EF would be critical first and foremost to tide me over just in case. I'm relying on that and the 3 months notice my work would need to give me if they chose to make any redundancies as my fall back without relying on my husband, which would be the absolute contingency plan in an emergency. I'm still paying the tax bills - it's over and above the £72k. It's an additional £28k in total - I have £18k of this set aside already from what I've been saving throughout 2021 and the final £10k will be from my income over the next few months, which is why I can't really start to make a dent over and above the minimum payments on credit cards until it's all cleared this year. Hoping that although progress will be slow until then it'll be steady then I can start to use my income to really make a dent in the credit card balances.

ellipticalorbit

I've completed a SOW below

Monthly Income Details

Monthly income after tax......... 4694

Monthly Expense Details

Mortgage................................... 630

Secured/HP loan repayments... 309

Council tax................................ 143

Electricity & Gas......................... 74

Mobile phone............................. 88

TV Licence................................... 7

Internet Services........................ 30

Groceries etc. .......................... 200

Petrol/diesel............................... 15

Car Insurance............................. 35

Childcare/nursery..................... 399

Other child related expenses..... 40

Pet insurance/vet bills............... 50

Building/Contents insurance..... 66

Total monthly expenses........ 2086

Unsecured Debts

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

Credit Card 1.....................12864.....384.......25.93

Credit Card 2......................4830.....136.......25

Credit Card 3...................11987......321.......22.93

Loan................................20346.......633.......19.4

Credit Card 6....................7484.......187.......11.9

Credit Card 5....................9922.......278.......19.3

Credit Card 4....................4946.......132.......20

Total unsecured debts....72379.....2071

It's been quite useful to do a SOW as although i've budgeted out a very detailed weekly 4 and a half year plan, I honestly had no idea my loan APR was so high. It's definitely made me realise as soon as I can eat into enough debt to be offered any lower rate products (which unfortunately is just not possible just now as my credit score / report is pretty poor due to such high credit utilisation) I need to move what I can to lower rate products. I guess it's just disheartening to see the loan APR is almost as high as the credit cards, but at least it's lower than some of them and I have been paying off that debt rather than just maintaining it.

Other actions I've taken over the weekend are boosting my Experian score by connecting it to my current account and joint account. This boosted my score by 52 points, means I'm 15 points from the next score band, which can't do any harm. My score is now 545 / 999. I've also enrolled on the electoral roll which will hopefully show up eventually and help the score too, although I'm sure this is all immaterial compared to actually starting to reduce my balances. I don't think there is anything else I can do just now to help build my credit score, but very open to any suggestions which will help on the journey and eventually enable me to reduce the interest rates to pay more off.

I've been reading a few diaries on here and it's given me good food for thought: I have a few items which I should be able to sell for several hundred pounds which I don't use so will look to sell them over the next couple of months and will update on progress.

Spending over the last week has been minimal:
Since Friday (which we'll call day 1 of debt free planning), I've spent quite a large amount on fuel (£71.11 for a full tank), however I think this will last me about 3-4 months based on current frequency of driving. I've not spent any other money outside the detailed monthly expense direct debits outlined in SOW so all within plan.

Questions:
Just a quick question - does anyone know how to set up a signature? When I go into my account > Signature it says "You don't have permission to use a signature." I'm just wondering if I need to take any specific action or if you're only allowed signature permissions once you're active a certain amount?

Should I cancel my £20/ month Euromilliions National Lottery direct debit? What about my £15/month Experian membership? They're the other regular expenses I have which isn't listed on my SOW which I feel are non-essential, given the severity of the situation.

Thank you!

Sarahwithlove

Hopefully as you pay off some debt you will get better offers and improve your score some more. 

ellipticalorbit

I thought I'd post an update with some progress as it's been a good first month!

Finances:

Firstly, I've done some jiggery pokery with finances and have a couple small wins. I decided to reduce my pension contribution by a small amount so between my employer and I we're now only putting in £813 a month, until the debt is cleared then I can ramp it up again - I figure £813 a month is still a decent contribution and my pension plan looks good long term - if I want to I should be able to retire and live simply by 50, or live my ordinary lifestyle by 55, or an incredibly luxurious retirement by 60 so either way I'm pretty confident in my retirement contributions and that's before considering any growth on the funds. Anyway, this change to pension contributions gives me an extra £69 a month net in my salary which is a nice little top up.

Another small win is I've realised my current pension pot is £2888 more than I thought it was which is good and I've now consolidated so I only have 2 pension pots to manage!

Another great piece of progress is that we now have 2 days less childcare costs to budget for as we have help from the family which we hadn't planned for. This reduces monthly childcare by £168 a month - so my saving in this is £84 off my monthly costs.

So overall, I'm £153 up a month, which is amazing. My revised SOW is below:

Monthly Income Details

Monthly income after tax......... 4763

Monthly Expense Details

Mortgage................................... 630

Secured/HP loan repayments... 309

Council tax................................ 143

Electricity & Gas......................... 74

Mobile phone............................. 88

TV Licence................................... 7

Internet Services........................ 30

Groceries etc. .......................... 200

Petrol/diesel............................... 15

Car Insurance............................. 35

Childcare/nursery..................... 231

Other child related expenses..... 40

Pet insurance/vet bills............... 50

Building/Contents insurance..... 66

Total monthly expenses........ 1918

Unsecured Debts

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

Total unsecured debts....71,476.....2,071


Latest Position:
This month I've paid off another £386 of the loan and Credit Card balances reduced by £514, so £900 paid off (net, after interest).

Debt free by Aug 2025 ~ 4y5m to freedom
**Current debt = £71,479 / £77,500. Paid off 8%**

Credit card debt £51,519 / £52,500

Loan debt £19,960 / £25,000

EF £1,000 / £1,000

Savings £0 / £10,000 (5 year goal)

Mortgage Neutral £312,170 / £315,000 Paid off 0.9%

Pension £16,467

“If you save me today, I’ll save you tomorrow”, Money

Successful people make decisions based on where they want to be

Someone is sitting in the shade today because someone planted a tree a long time ago

It's beginning to feel like there is some momentum behind this, and I think with a few months of making smarter decisions things will start to become much easier and it'll clear itself eventually if I stick to the plan.

One-step-at-a-time

Definitely cancel Experian - if you join MSE credit club you get the full report free of charge.

warren80

You have made a really good start. I admire your organisation and planning. One of the things that I have realised is that having a plan removes 90% of the stress.