Debt free by 40

thriftyrita

So I've finally decided to start a debt free diary and am hoping this will help me to find others on a similar mission so we can all keep one another motivated!

Through a mixture of a failed business venture, consumer debt and house renovations we are in a position where we owe more than we would like. Fortunately our income is good and we can afford the repayments, but are now expecting baby number 5 and would love to clear this debt so we can instead put the money towards the future (and a bit of enjoying ourselves in the here and now!). 

Current situation:

Store card: -£89.90
Sofa finance: - £927 (£20 monthly payment)
Credit card 1: - £2,576.25 - 4% interest until repaid (min payment £36.57)
Credit card 2: - £4,775.60 - 0% interest until Sep 2022 (min payment £48)
Credit card 3: - £12, 852.67 - 0% until June 2021 (min payment £120)
Personal loan 1: £21,218.02 - 3% interest (£400 monthly payment)
Personal loan 2: £22,441.08 - 3% interest (400 monthly payment) 

Total: £64,779.40

Our monthly income is around £7,250 with a mortgage of £1,200. We have company cars including private mileage so no vehicle or transport costs. We're currently saving £1,000 per month to cover us for maternity leave as we will only get SMP so income will reduce significantly from November for around 12 months. Minimum payments on debt at the moment are around £1,000 although we are paying at least £500 extra each month above the minimums to get them repaid - up until now this has been spread across the payments.

Goals

1. Repay store card, sofa finance, credit card 1 and credit card 2 before baby comes along in October. 
    Obviously continue paying the minimum on other debts over this time which should leave us with a total of around £50k in October

2. Reduce remaining credit card 3 balance to under £9k by the end of the year

3. Save for a big family holiday with the baby in 2022 before our oldest kids go off to uni (this will also be when our income is reduced due to maternity leave)

4. Repay credit card 3 by end of 2022 - total should then stand at around £27,500 remaining across the two personal loans

5. Repay personal loans by December 2024 (or sooner if possible)

Plan

I'm about to start a second job which should bring in around £700 per month after tax - this will all go towards repaying our priority debts in goal 1 until December and then be saved towards our holiday from January onwards.

Unfortunately we have some fairly urgent work that needs to be done on the house this year totalling around £40k. We don't have this money in savings but can borrow from family interest free. We will remortgage in March and extend the mortgage (we have around £200k equity) to repay family this money so this shouldn't have a long term bearing on the plan.


I'm feeling really confident and motivated about becoming debt free but would absolutely welcome any advice, encouragement or tips that might help along the way!

vampirotoothus

Hi what is the rate on CC3 from June? I think that you may need to consider prioritising that over CC2 which is on 0% until next year, to keep your interest costs down. Good luck

Honeysucklelou2

Congratulations on baby no 5. 

You have a good set of goals there...good luck with the debt busting.

thriftyrita

vampirotoothus said:

Hi what is the rate on CC3 from June? I think that you may need to consider prioritising that over CC2 which is on 0% until next year, to keep your interest costs down. Good luck

Yes, I did consider that. The interest rate on that card goes up to 19.9% in June.. however I have been pre-approved already for a balance transfer card with a 1% transfer fee that will then be at 0% for longer than I will need to clear the balance. If I couldn't do this I'd definitely be prioritising CC3 but I think getting some wins in early by paying off the smaller debts first will help keep me focused

TheAble

With 60k in debt and about to go in hock to family for another 40k you absolutely can't be going on a big expensive holiday. It's wrong and the family you are going to borrow such a huge sum from will be scratching their heads in bewilderment.

Pay off all your debts first and then build a bunch of savings. At that point you can start to think about holidays again.

thriftyrita

TheAble said:

With 60k in debt and about to go in hock to family for another 40k you absolutely can't be going on a big expensive holiday. It's wrong and the family you are going to borrow such a huge sum from will be scratching their heads in bewilderment.

Pay off all your debts first and then build a bunch of savings. At that point you can start to think about holidays again.

Our family loan will be repaid when we re-mortgage before we go on holiday. If there are any unexpected problems we won't go on holiday and will use the money to begin repaying the family loan instead.

Our priority isn't repaying all our debts before we go on holiday again, but being debt free in the next 4 years or so. We don't want to sacrafice family holidays in that time and are fortunate that we don't need too. Essentially our plan is:

1. Repay as much as possible before the baby arrives
2. Spend our year of being on maternity leave repaying our debts at the minimum (or slightly above) while saving to go away
3. Once back at work pick back up the intensity and aim to have everything repaid by December 2024

TheAble

Even if you save up for the holiday though, the money you save up for it could have gone towards paying down your debts, or towards your house repairs. So in an indirect sense what you're planning to do is secure debt against your home in order to pay for a holiday.

The thing is you never know what's around the corner. You may lose your jobs, or the bank may not extend your mortgage (they'll want to know what other debts you have), or whatever. When you carry all this debt around you're creating risk for yourself, so it's essential to get it paid back as soon as possible rather than space it out all nice and casual. Have a modest holiday by all means but I get the impression you're gearing up for a 10k-er or some such...

thriftyrita

TheAble said:

Even if you save up for the holiday though, the money you save up for it could have gone towards paying down your debts, or towards your house repairs. So in an indirect sense what you're planning to do is secure debt against your home in order to pay for a holiday.

The thing is you never know what's around the corner. You may lose your jobs, or the bank may not extend your mortgage (they'll want to know what other debts you have), or whatever. When you carry all this debt around you're creating risk for yourself, so it's essential to get it paid back as soon as possible rather than space it out all nice and casual. Have a modest holiday by all means but I get the impression you're gearing up for a 10k-er or some such...

I suppose you could look at it like that but if you could also follow that train of thought to suggest that everything you buy which is not an absolute essential until your mortgage is repaid is indirectly debt secured against your home. We are comfortable with the mortgage we have for now and the plan for funding the repairs.

I think it all depends on your attitude to risk. Absolutely you never know what is around the corner but I am confident that our jobs are secure. While we would like to repay our debts and plan to focus 100% on this over the next few months for our family there has to be a balance and this is it for us.

thriftyrita

Its been a very busy week this week which has meant not much spending - always a welcome bonus to being busy! 

This weekend we've test driven some new cars. We're both fortunate enough to have company cars which are due to be changed later this year so we're looking around at alternatives. We're looking at full electric models as the tax we will pay on these is much lower than our current cars which will bring more into the budget later this year when we will especially need it due to maternity leave. I'm not really that interested in cars and prefer to think about the practicalities of is the boot big enough and how much leg room is there... and of course what colour can I have!

I've spent today listing things on facebook marketplace. I do this every couple of months and am always amazed how quickly stuff sells! I've made about £100 doing this today which also includes a HUGE box of old books and dvd's that are going off to music magpie. You don't get much per item on music magpie but they offered £10 more that webuybooks which I was pleased with. At the moment our books and dvds are stored in a vintage sideboard which is worth quite a bit. We've decided to sell that too so need to clear it out over the next couple of weeks.

I've also been looking at our pet insurance this weekend. We spend about £100 a month on this and have been reluctant to give it up as our dog needed a big operation when he was a puppy that would have cost us £6k without the insurance. He hasn't needed anything like that expensive again (he had an operation following an accident a couple of years ago that was about £1.5k - again covered by insurance) but we've been worried he will. So we're paying around £1200 a year for insurance at the moment. We can get third party insurance that would cover us if he ever ran into the road and caused an accident etc for £25 for the year. We do have an emergency fund of around £1000 so could cover something up to this amount if needed. I'm thinking we should cancel the insurance and put the money towards our debts each month instead? Opinions welcome on this!

rugbymadfamily

Hello! Good work starting the diary, mine helps hold me accountable and think about my spending and generally just trying to be more MSE!

I cancelled pet insurance as the one time we needed it (£2.5k of bills), they refused to pay out. Then I read that only 1 in 3 pet insurance claims are approved so I cancelled it. We now "self insure" so I put away £50 a month to cover future potential vets bills and at least that way I know I have the money and am not dependent on insurance company approving or not. So personally I would tuck half away each month and put the other half to the debt each month.

thriftyrita

Some good progress over the last few weeks, on the plan, starting my second job has certainly meant I’ve got less time though!

we’ve repaid the store card, sofa finance and £1000 on credit card 1 along with the minimum payments on the other cards and loans - this has reduced our total by around £3,000 which isn’t bad in a month. I’ve got a few things to sell too which should raise another £700 or so. I’ve transferred the majority of the balance on credit card 3 to a 2 year interest free card and got a 1% transfer rate, that cost me £116 but now it will be interest free until repaid so was definitely worth it. The £1000 left on credit card 3 is my next priority to get that repaid before it begins attracting interest next month. I’ve got a few unexpected bits coming in this month, an insurance claim for £140, £80 in work expenses and £15 from our cashback bank account. All together with the stuff I’ve got to sell this should clear the £1000 left on credit card 3 so next month I can get back to focusing on credit card 1.

In the end we decided to go down the route of cancelling the pet insurance. We have an emergency fund if needed and worked out over the last 3 years we’ve paid over £3500 in insurance and only reclaimed about £800 so it just didn’t make sense to continue it. All that money will go towards our priority debts now too.

no real unexpected expenses so far. The hoover broke 🙄 in the past that would have been £250 on a new one but we managed to get a part for £10 and fit it ourselves so no need to break into the emergency fund!

Half term next week but have already planned some no spend activities and hoping for good weather so the kids are happy just heading to the park etc. Going to get some ice creams in with the food shop at the weekend to save on spending at the cafe... with the added benefit of a good bribe to get them home again as I’ll be working most days too on and off!