Lifestarts has a 5 Year Plan!

Lifestartsat40

capuchin said:

Ps. About boats - They are wonderful things which truly enhance quality of life. I can fully understand why you did it! Assuming (due to price) it's an inland river boat, have you considered sharing/selling a part share of it? For example, perhaps somebody would like the boat for a weekend every month, and you could come to an arrangement based on this. Even if it only realised you £1000-1500 a year; that's mooring costs paid for.

Its definitely something to consider in the future but as it is still very new to us I don't think I like the idea of anyone else tinkering with it - it needs some things fixing which OH is capable of doing and the hope is that once its refurbed a little it will be worth more money than it is at the minute (we got a good price as the seller hadn't even visited it since the start of the pandemic) They don't depreciate like cars do  - The inlaws have just sold their boat and got the same price for it as when they bought it 11 years ago

Lifestartsat40

In light of what Capuchin has highlighted about interest, I have changed my figures to show the Lon with all the interest added on at the start - therefore with each repayment the full amount of the payment will come off the balance. Any lump sums I pay towards this I will deduct at face value and then get a more accurate figure at the end of the year by asking for a redemption figure. 
The only down side of this is that it has increased my debt by 10K 
I'm still not sure if this is the best way to go  - I did ask on a separate thread what the best way was.... 
Its like for mortgages - if you start paying down a 20 year mortgage you don't start with the figure with the 20 years worth of interest added on do you? 
Any thoughts are welcome on the best way to record this loan - thanks

pelirocco

Lifestartsat40 said:

capuchin said:

I think one of our calculations is way off! I'm assuming 13.8% apr, which is 1.115% monthly (0.138/12) and then multiplying that by 17500 which gives me 201.25. Amortisation will bring that down over time, but if your interest monthly is £112 then I believe you have the headline figure incorrectly listed.

In which case it may be worth paying the home improvement loan first.

I see no way that you can be paying £112/month. (Though I did just have a thought that perhaps you're calculating 13.8% total (£1344) and then dividing it by 12 to assume the interest rate. That would work only if you were paying the loan off in 1 year as the interest would taper down sharply through amortisation.

I did it by taking my monthly payment of £327 x 84 payments = £27,468 
Original loan was for £18,000 = £9468 is interest  - I then divided that by 84 payments which gives £112 interest each month? 

£9468 interest on an ,£18k loan is madness
The amount of debt you are carrying  on your income  should have you seriously  worried
You are 1 job loss or even one fairly short term wage loss  from financial ruin
And yes I know  my post isn't helpful or supportive 

Lifestartsat40

Thank you for your comment Pelirocco - Yes its a lot of interest, however as discussed I do not intent to pay that amount of interest as I hope to clear the loan in a much shorter timeframe. 
Neither am I seriously worried. Job Loss is very unlikely - OH has worked for the same company for 13 years and in the extremely unlikely event of him losing his job he could find work almost instantly. Furthermore I only work 2 days out of every 8 and so I would have the option of going full time. Job Loss for me is also unlikely as I work for the emergency services. I also have self employed income which is a few hundred pounds every month which I haven't included, I don't think we could ever end up in 'financial ruin' when we have over £150k equity in our home - we would sell up and downsize before 'financial ruin' was ever reached. 

Aspiration

I always think when you have a true light bulb moment it’s hard not to constantly think about it. Truth is though, once you’ve accepted how much debt you’re in and are taking action each month that goes past you’re in a better position as long as you’re on track with the plan. 

Sounds like you’ve got a good plan @Lifestartsat40 and Well Done for accepting your position and taking action to resolve! 

Aspiration 

TheAble

Lifestartsat40 said:

In light of what Capuchin has highlighted about interest, I have changed my figures to show the Lon with all the interest added on at the start - therefore with each repayment the full amount of the payment will come off the balance. Any lump sums I pay towards this I will deduct at face value and then get a more accurate figure at the end of the year by asking for a redemption figure. 
The only down side of this is that it has increased my debt by 10K 
I'm still not sure if this is the best way to go  - I did ask on a separate thread what the best way was.... 
Its like for mortgages - if you start paying down a 20 year mortgage you don't start with the figure with the 20 years worth of interest added on do you? 
Any thoughts are welcome on the best way to record this loan - thanks

Basically at the moment it's costing you £200/month in interest, however you write the figures. The quicker you get it paid down the less it will cost you. Eg if you paid £1000 towards it tomorrow, it would be incurring approx £11/month less in interest from that point on. You just multiply the amount outstanding by the interest rate.

Pelirocco makes a good point about risk by the way, something that is often overlooked. What catches people out is that it's all ok right now but then some life event happens that topples the house of cards. Chances are you'll get away with it but do be aware that as you increase debt you increase risk; by keeping debts low or non-existent relative to income you're improving your chances of getting through any unexpected crisis.

capuchin

Lifestartsat40 said:

Thank you for your comment Pelirocco - Yes its a lot of interest, however as discussed I do not intent to pay that amount of interest as I hope to clear the loan in a much shorter timeframe. 
Neither am I seriously worried. Job Loss is very unlikely - OH has worked for the same company for 13 years and in the extremely unlikely event of him losing his job he could find work almost instantly. Furthermore I only work 2 days out of every 8 and so I would have the option of going full time. Job Loss for me is also unlikely as I work for the emergency services. I also have self employed income which is a few hundred pounds every month which I haven't included, I don't think we could ever end up in 'financial ruin' when we have over £150k equity in our home - we would sell up and downsize before 'financial ruin' was ever reached. 

I don't like to think of it as debt, but of "cost of servicing the debt."

This comes in 2 elements:

- The monthly interest cost (how much owing the money is costing me)

- The monthly payment (how much of my income is this debt costing me)

If both of these numbers are zero long term, it's essentially a 'good' debt in my opinion. From a logical standpoint, there's nothing wrong with debt in itself. (for example, say you buy a boat costing £350 a month in repayments, and rent out the boat every month for 7 years at £700 a month, there's nothing wrong with this! Of course the complexity/risk comes from not being assured rental income, repairs, moorage, insurance, etc etc etc, but this is essentially how buy to let landlords snowball into huge portfolios)

Anyway in your instance I'd set my monthly payment in my monthly accounts spreadsheet, and then have an additional spreadsheet showing what you owe left on the loan. Every time you pay £327, reduce the loan amount by £126. This should shard to hit home fast how badly you are bleeding pure interest to the banks.

It works for me at least - I have a £1100 credit card debt with Lloyds which is costing £18 interest every month. When I pay my £28 minimum payment, I update my monthly spreadsheet to show the debt as £10 less, and this hits home that every damned month, I'm giving them £18 just to service the debt. That's over £210 a year, on a £1100 debt.... Whereas: I plan to pay that debt off in a few weeks if possible. This isn't just saving me the £210 a year, but also paying off the balance.

Compare this: If I make minimum payments of £25 a month, it'll take me almost 7 years to repay, and in that time I'll pay £895 interest from today. (£2000 total) If I pay it off this month, I'll pay around £10 more interest from today. (£1110 total)

In your case: If you modified the £327 monthly payment to £600 a month, you will have paid it off in 3 years and pay £3,644 interest (as opposed to almost £10,000!!!)

If you modified the £327 payment to £800 a month, you would pay it in 26 months, at a total of £2,580 interest.

If you could increase this to £1000 a month, it'd be paid off in 20 months with only £2,000 interest.

Lifestartsat40 said:

capuchin said:

Ps. About boats - They are wonderful things which truly enhance quality of life. I can fully understand why you did it! Assuming (due to price) it's an inland river boat, have you considered sharing/selling a part share of it? For example, perhaps somebody would like the boat for a weekend every month, and you could come to an arrangement based on this. Even if it only realised you £1000-1500 a year; that's mooring costs paid for.

Its definitely something to consider in the future but as it is still very new to us I don't think I like the idea of anyone else tinkering with it - it needs some things fixing which OH is capable of doing and the hope is that once its refurbed a little it will be worth more money than it is at the minute (we got a good price as the seller hadn't even visited it since the start of the pandemic) They don't depreciate like cars do  - The inlaws have just sold their boat and got the same price for it as when they bought it 11 years ago

I do understand this point of view, but at the end of the day, money is money! I notice you don't have maintenance costs budgetted in your SOA for it. I'd suggest you budget around £250/month. (do you have mooring costs?) I just don't want you to be under any illusion of how expensive they are to maintain, especially alongside a house and car. A year before the pandemic started, I was earning over £100k a year: This is my poor lonely boat now. I've not even got her listed under assets because she'd cost around £3000 to repair to a standard I'd like and it's just not economical. They don't depreciate much if well maintained, but the annual cost to maintain them is substantial.

What kind of boat is yours?

Lifestartsat40

All Change again! 
I have changed my figures to show more accurately what I owe  - now I know how to work it out (thanks Capuchin) I can change my spreadsheet monthly to show how much has come off the total debt and I will also be able to see the impact of any overpayments on interest. 

Capuchin - I'm so sorry to hear how the pandemic affected you - I can't imagine how that must have been for you. 

Our mooring costs are relatively cheap (c£700 per annum) there is also the River license and insurance to pay for (both were paid upfront for the year) so I need to set up a pot for this as well as regular ongoing costs. I'm under no illusion how much they cost to run - nearly everyone we have met who owns a boat has told us the same. 
I do have some s/e income which I did not include and some of our outgoings are shortly due to reduce (mortgage/phone contract) as well as a rise in income which is due so hopefully I will be able to factor these costs in as well. 
Our boat is a Princess Motor Cruiser  

Lifestartsat40

So £26.73 hit my account today from an Ebay Sale that ended yesterday so I have deducted the £3.20 postage and moved the rest into my '1K Challenge Fund' I set myself a target of making £1,000 extra before the end of the year and I am now up to £376.87 which Im more than pleased with to say I only started on the 20th October. 
I have another item with bids starting at £100 ending tomorrow - No bids as yet but plenty of watchers - lets just hope they are all biding their time as that would top my fund up nicely. 
I'm going to have a look at what overtime is available at work as well in the run up to Christmas  - I can go in any time for plain time or over the weekend for time and a half. Seeing as it is a 50 mile round trip to work, it makes much more sense to go in on a weekend - Im thinking maybe 6am-12pm as 6 hours is the longest I can work without taking an (unpaid) break 

enthusiasticsaver

I would target the boat loan first as the interest rate is so high.  As already explained the early years of a large loan like that are the most expensive so averaging the interest out over the whole 7 year period is not an accurate way of working out how much you are paying in interest. Boats, like cars cost a lot in maintenance so a savings pot is definitely an essential.  If you will get the use out of it and it means cheap holidays though I daresay it will enhance your life although borrowing at that rate is not ideal.