Getting a grip of my finances

SweetPeaGirl

It's time for me to properly get a grip of my debt and get rid of it.

In January 2020 I had £24,600 in debt which I accumulated between 2015 and 2018. In 2015 I went self-employed, and basically used credit cards to plug the gaps in my income. I also made no provision for tax and national insurance. My finances were a mess, and my head was in the sand.

From 2018 to the end of 2019 I dipped in and out of my overdraft depending on the time of the month, but didn't accumulate any further debt. I didn't do anything about the debt I had though (ostrich mode engaged).

Finally, between January and April 2020 I started to get a grip. I took out two loans to pay my tax bill and overdraft, plus a balance transfer card (CC2) to pay the majority of my credit card (CC1). This is how things looked then:

L1: £7,000
L2: £12,000
CC1: £300
CC2: £3,300

I had to go back over my accounts etc to find that £24,600 figure - last year I was only just lifting my head out of the sand, and had avoided adding everything up.

As things stand right now, I have £18,800 in debt. Which is great progress, yey!

But when you dig into the figures, it's not quite as good as it sounds. Because while L1, L2 and CC2 have all been moving in the right direction, I have added on to CC1.

L1: £4,094
L2: £9,470
CC1: £3,064
CC2: £2,172

If I had made my payments and not spent any more on my credit card, I would have £16,000 in debt, not £18,800. So yeah, I'm pretty angry with myself, but trying to figure out how I went wrong rather than beating myself up about it.

What I think I've done wrong is two things:

1) Across the year my self-employed income has gone up, but sometimes invoices are paid late. I've been solving cash flow issues with my credit card, then only half-heartedly paying it back when my invoice came in.
2) I haven't been using any kind of budget - when I have money, I pay my fixed costs and then buy whatever I want.

I also feel quite precarious with my finances, and I want to feel more in control of things. So I'm here to get things under control and pay down my debt as quickly as possible, so that I can then start saving and building for my future.

I've decided to tackle this in three phases:

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Phase 1: Getting a *proper* grip. This is happening NOW!

- I've gone through all of my spending using the MSE budget spreadsheet and also the 'Emma' spending tracking app, so for pretty much the first time ever I can see where my money is going. My new budget stops unnecessary spending on clothes, crap off Amazon, etc, and cuts down on my food spend (my goodness me, I waste so much). This will take £350 off my average monthly spend.

- I've done all of the easy savings - switched suppliers, cancelled Netflix and other subscriptions, etc. I've found about £60 of savings each month this way.

- I've been approved for two further balance transfer credit cards (currently in the post) which will give me:

CC1: £264 (19% interest)
CC2: £2,172 (interest free to May 2022)
CC3: £1,800 (interest free to November 2021)
CC4: £1,000 (interest free to January 2022)
Plus L1 and L2

- I've also talked to my contacts and am working on increasing my income, which is generally pretty unpredictable.

My phase 1 plan of attack is to:
1) Spend within my budget and make my savings
2) Make my minimum payments on everything
3) Spend NOTHING on credit cards
4) Continue putting money aside for my tax bill
5) Use my remaining cash to pay off CC1 and build some savings. My objective is to have savings to cover 2 months of my essential outgoings including minimum payments on everything (£4,050).

I know saving is not usually advised when you're clearing debt, but since cash flow issues have been a driver of my debt in the past, I think having a buffer is a good idea and will also make me feel more in control of things. It will mean I can stick to my plan regardless of clients messing about with late payments etc.

Phase 1 will be completed by the end of June 2021, based on a work project I have secured which will pay enough to get me off to a good start!

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Phase 2: Getting rid of the credit cards

In phase two I will maintain all of the good habits from phase one, and use every penny left over to pay down my other credit cards in order of their interest free period ending, so that's CC3, then CC4, then CC2.

I hope to pay off each one before their interest free period ends, and so conclude Phase 2 by the end of May 2022. This will depend on how my work situation goes though.

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Phase 3: Bye bye loans

Throughout phase one and two I will have continued paying down my loans, so the totals will be substantially lower than they are now.

In phase three I'll use all of my spare cash to overpay the loans.

If I stick to my plan, I think I'm looking at somewhere between end of 2022/middle of 2023 to be debt free. I'm going to put my energies into keeping to my budget and maximising my income, so hopefully will do it sooner.

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Phew! And if you managed to read all that - wow, you're committed!

I'm mostly going to use this diary to support my discipline with spending/budgeting, and track my progress to help motivate me when the first flush of enthusiasm inevitably starts to wear off.

Thanks for listening :-)

FootyFanDan

Good luck - certainly seems that you have a good plan in place.

elbree

Hi @SweetPeaGirl 👋 Well done for posting and sounding so organised. Saving an emergency fund is a good idea and makes the eventual goal more realistic as you won't need to rely on credit if something goes wrong. Good luck!

enthusiasticsaver

It sounds like you know where you have been going wrong and have a decent plan. Saving for emergencies is particularly important if you have an unpredictable income and given the loans are coming down and the cards are mainly 0% I think this is a sensible course of action. If you were paying 30% interest on the cards it would be a different matter. Look forward to seeing you conquer these debts. 

warby68

It sounds like you haven't had a lightbulb moment as such but that you've been turning the dimmer switch to full brightness gradually and are now there fully in the spotlight

The plan sounds good - if your full review of spends suggests you can save £400 pm that allows for really good progress and getting an emergency fund together should help with irregular income and breaking the reliance on credit for good.

Good luck

SweetPeaGirl

Oh wow!  I never talk to anyone about money issues, and it was a bit intimidating to do it here - and then really really good to see these lovely replies. So thank you all! It's also nice to have some confirmation that an emergency fund is a good idea.

warby68 said:

It sounds like you haven't had a lightbulb moment as such but that you've been turning the dimmer switch to full brightness gradually and are now there fully in the spotlight

I love this characterisation. Very accurate!

SweetPeaGirl

My progress today is that when I sat down to do my supermarket shop for delivery, I realised that I don't need it. I have well stocked cupboards and freezer, and just popping to the shop for some milk will see me through at least another week - and not even with difficulty.

I've also dismissed a couple of purchases I had floating around in my mind as things I wanted. NOPE! Only necessary spending from now on!

Four_Seasons

Welcome, I will be following and cheering you on.

elbree

SweetPeaGirl said:

My progress today is that when I sat down to do my supermarket shop for delivery, I realised that I don't need it. I have well stocked cupboards and freezer, and just popping to the shop for some milk will see me through at least another week - and not even with difficulty.

I've also dismissed a couple of purchases I had floating around in my mind as things I wanted. NOPE! Only necessary spending from now on!

Well done, you can always put stuff in your 'basket' and save it for birthdays!

WinterWarrior

That’s a great plan. Good luck and a huge round of applause re the shopping. We could live happily from the freezer and cupboard for some time too (although chocolate might run out and that’s an essential).

SweetPeaGirl

Hello and thanks once again for all of the lovely comments.

I'm just popping by to say I haven't spent anything, ha! In particular I've been planning ahead taking a drink and snack from home and that sort of thing to avoid spending those few pounds here and there that soon add up.