A house of cards - help

Squiffy

New user, first post, not sure where to begin.

OK. I've got about £68k of unsecured debts, plus a mortgage of £215k on top.

About 3 months ago I suddenly became VERY aware of the levels of debt. I've taken as much action as I can to reduce things, and since then I've managed to knock about £8k off the debt. I've restructured what I can onto the lowest rates, reduced unecessary household expenditure and started doing the usual stuff like taking packed lunches to work.

About £29k of the debt is on low interest credit card deals. £25k is a loan from my current bank. The other £14k is through a loan from another provider.

Paying the minium on the various debts cost about £1100 per month. Of this, interest amounts to about £360.

The mortgage is £1460 per month.

My income at the moment is £3200 per month, so I have an OK-ish amount to live on of about £640 per month.

My wife works, but her salary is about the same as the nursery fees that we will be having to pay for another 12 months.

My biggest concern is that I've recently had an "at risk" letter for redundancy. I work in IT, and my current salary is very good, and a hangover from the glory days of early 2000. If I am made redundant, I will receive redundancy of about £11k.

I expect the best paid job I could get elsewhere will probably pay in the region of £2500 per month. And even that is a big assumption - I may well have to accept a bigger pay cut.

So my income is likely to be lower than my current debt / mortgage outgoings, and leaves no money at all to live on.

We have investments worth about £8k.

The house is worth £255k. I'm tied into an OK-ish low fixed rate until the end of year. When this expires I expect my monthly payments to increase by £200. I'm quite concerned that due to the high level of other debts and a lower annual salary, I'm going to struggle to find another lender who will accept us on a decent rate at this time.

I just don't know what to do. It looks like the house of cards will come crashing down.

I have a very good credit record, have never missed a payment and am just so scared at the position I'm suddenly in.

What should I be looking at doing?

Should I try and make some voluntary arrangements now, or wait until my job position is clearer?

Should I go for an IVA? My biggest concern obviously is to protect the house.

Any advice would be very, very much appreciated.

THRIFTY_JO

Thanks for giving us an outline of where you are now financially.
It would be very useful for you if you downloaded Martins Budgeting spread sheet and found out EXACTLY where every penny goes. I think this is at the Top of the Debt free threads.

Specify every bill including utilites separately with APR and make sure you are getting the absolute best deals.

Have you looked at the Money Saving Old Style, lots of good info and way to cut your shopping budget. I manage to shop for 2 adults for c£40 a week, so compare with your family set up and consider if you can change this. I reduced our bills by not shopping at Tescos and going to Morrisons and Lidl/Aldi. I used to spend £60-80 a week. Surprising how quick it mounts up when you don't take a shopping list!

You would be surprises how the one off or, just a treat things add up.
For example I recently got new house insurance for the same cover for £155 cheaper but the APR on the DD was 30%!!!! But by putting on a cc and doing bt the interest is now 0% for 7 months.

You'll have to be brutally honest, but, if you have managed to take a sizeable chunk off your debt, you may be able to reduce it by that much again just by taking a closer look. I don't know if you drive a car that may be expensive to run, have you though of changing this? Or, of you are 2 car family can you get away with just the one?

Any unused (and be honest!) gym or other memberships that you can get rid of?

I know its not much fun, but, by sacrificing the treats it means should the worse case redundancy scenario happen you will be in a much better position.


Are you able, at present to ovepay on the debts with the larger APRs to reduce the debt quicker?

You then may be able to overpay more with the cash you have saved after looking at Martins Spreadsheet.

Good luck, and if you are feeling brave, post your full break down on here, there are plenty of others who can give you advice on how to save that little extra!

Jo

Squiffy

Hi Jo.

Thanks for the response and some useful tips.

Can't see the spreadsheet you referred to? A link would be much appreciated.

I've already moved utilities onto cheapest deals, so not much scope there.

Tied into contracts on mobiles, so no scope for saving there.

Sky - looking to downgrade package. Will only save about £6 pm though.

Gym - yes I am a member, but I do use it. As a diabetic I need to. I have a dodgy knee so can't go running instead. I might look at one-off cost to get a mountain bike and then cancel gym?

Existing debts - I've done all the tweaking I can on moving stuff to lower interest. I'm only paying £125 interest on £29k CC debt, and half of that is fixed for life of balance.

Big loan is at cheapest rates available to me - 6.9%. Other loan is flexible loan at 8%. I was turned down for a cheaper loan from the Co-Op last week as "they are concerned I may be over-extending my finance".

Food - we both take packed lunches to work, and I've given up on Starbucks coffees and all that. We very rarely have take-aways, but do splash out a bit on better quality food. We have cut this back recently.

We do have two fully paid for cars, but both are necessities for our current jobs. (I actually make a profit from my car as regular business trips at 40p per mile can occasionally earn me up to £500 per month extra for actual fuel cost of £120).

We don't smoke, don't go out for drink (although do have occasional beer / wine at home) and eat out quite rarely.

We do spend £80 per month on entertainment for our kids. Swimming, karate classes, visits to zoos, etc. We are looking to cut this back too though - more trips to the local park instead of to the local zoo.

I'm not really in a position to overpay debts any more than I already have. All cash savings have gone into the £8k I originally paid off, and I don't really have any spare out of our remaining living expenses.

My finances are still OK unless I get made redundant (decision end of this month). Well I say OK, but I do realise that the level of debt is quite horrendous. I'm shocked & embarrased that it has got this bad!

I really just am not sure how best to proceed. I'm in a relatively strong position at the moment with being able to meet all my commitments, and no missed payments. How can I best position myself if the worst comes to the worst?

Oh, and one more confession. My wife doesn't know about the extent of my debts. I know I should tell her. I know she will be disappointed. But I also know she will support me. But I just can't face telling her. Any ideas how I could proceed with that? How have other people faced up to telling their partner?

Lucie_2

click here for Martin's budgeting advice. There is a link to the spreadsheet on there, you need to download it.

Squiffy

Great - thanks Lucie

meanmachine_2

Squiffy, I think you'd be surprised how many people are in the same position as you.

I know this is a last resort, buy on a 215K mortage you could revert to an interest only - just in the shorter term, so that you have something to live off if the worst does happen. Btw, £1460 sounds a lot still.

Don't be tempted to MEW to pay off your debts. You can't be sure that house prices will keep rising.

Instead of Sky, why not stop the sub altogether, change to freeview and opt for a £7.99 a month DVD sub? Also, if you cancel, Sky have a habit of phoning you up, offering you free deals, just to tempt you back.

Tiscali do £15.99 for broadband. Or you could pay as you go broadband.

You don't need to go to the gym if you're diabetic. Go for a run.

Don't go to Waitrose or Tesco, go to a cheaper place with a list. If you're spending more than £200 a month on food, it's too much.

Be honest with your wife - tell her that your changing employment circumstances have got you worried. I'm sure she's noticed you're distracted. You can put her mind at rest by telling her it's not her fault, you're not going off her, but it's to do with money.

Women are great with money. She'll kick your !!!!!!, but help you sort yourself.

Good luck, and keep us posted.

EDIT:
Oh and I notice you have "investments" worth 8K. Sorry mate, can't have those. You're in debt. Debtors shouldn't save, unless the interest is more than the loan rate - which it won't be.

Plus, make sure you're claiming child tax credits.

and finally, these debts are unsecured, so the house is not at risk.

Squiffy

Hi Meanmachine.

You're right on the gym. I've cancelled it just five minutes ago. I can't go running due to a dodgy knee, but I can still walk.

You are right on Sky too. It is an un-needed luxury. As long as we can still get CBeebies for the kids, the rest doesn't matter. Mind you, we REALLY would like to keep our Sky + going. Does anyone know what the cheapest (or free!) way to do this would be?

My broadband is actually cheaper than Tiscali. I've gone for TalkTalk which is combined broadband and phone calls for £19.99. With basic BT line rental, that is unlimited calls and broadband for about £30 per month.

What does MEW to pay off my debts mean?

Does anyone have any thoughts on whether I should be approaching the credit card and loan companies?

EDIT : Reason mortgage payment may seem a little high is that it was originally for a 20 year term, of which 18 years 9 months remain.

meanmachine_2

Phone Sky, tell them you're going to cancel, but ask what will happen to the Sky+ box. See what they say.

MEWing means withdrawing the equity in your house, which you say is around £40K. In reality, it means borrowing against this equity, and is a form of secured debt. Don't do it.

Maybe extend the term of your mortgage, or remortgage for 25 years. 20 is shorter than the standard. This should shave around £200 off your monthly repayments. Or try for a flexible mortgage that will allow you to overpay once you are back on a surer footing.

This is all just my opinion of course. I'm not an expert. And I wouldn't make major changes to your finances without talking it over with your wife first.

Any one else any ideas?

zAndy1

Well done for having the courage and common sense to post on here mate, you sound like you're in a very similar position to myself although my unsecured debts are approx £74000 and me and my wife only take home approx £2500 pm. Our mortgage is £1000 pm by the time we've added on the flexible advance and secured loan on top of the basic mortgage payment. Basically we have approx £1000 pm more going out than is coming in, doesn't take long before that becomes unsustainable! I'm looking into all possibilities, I've spoken to the CCCS who recommended an IVA through debt free direct, I've also spoken to payplan and am waiting for their assessment and recommendations. The IVA route worries me as there are fees involved and I'm unsure what will happen at the end of the 5 years in terms of the equity in our property and being expected to release it. Basically we can't afford a mortgage for any more than we have now so I fail to see how we could remortgage and release the equity, especially since at the end of the IVA our credit rating will be awful anyway! I'm thinking a debt management plan might be a better option but that really relies on the creditors freezing interest or it will never get paid off, even assuming they did freeze interest and charges it will take at least 10 years at £500 pm to pay it all off, the thought of no holidays or proviso for buying a new car in that time isn't exactly appealing either! I think about this all my waking hours to be honest trying to work out what's best to do but I still don't know and I need to make a decision quickly as things are just getting worse all the time. Sorry if I haven't been much help to you, I am well aware you've probably posted on here as a result of my post on a certain forum and that makes me feel better that it's made somebody take note of their situation and try and get some advice. Hope things get sorted out soon mate

Cheers
Andy

Malestrom

I haven't much to add at this time as your employment future is uncertain. Please post back when you know whether you'll be made redundant or not as different actions are required depending on this.

Someone mentioned this above and i'd like to re-iterate it: Your debts are unsecured and it is very unlikely that you will lose the house so long as you can continue to pay the mortgage. Living expenses and mortgage come first, debts come last. You do have some sizeable assets (cars, investments, equity in house) and you may have to release the equity in some of these to lower your debts.

zAndy1

Been thinking about my position, instead of me and my wife having our credit rating ruined is it an option for one of us to arrange a DMP/IVA with our creditors but the other to keep up the payments on loans/credit cards as normal? That would then allow one of us to have a reasonable credit rating.. Depends if all debts in the household have to be taken into consideration and included in a DMP/IVA I suppose..