Decided NOT to take a secured loan!

Ellalou

So..I am here for a little help/support…please! 

Currently we have approx £39k in unsecured debt (loans / credit cards/ overdraft).  

we have mortgage - £182k outstanding and our home is valued at approx £285k at the moment. 

I recently looked into a secured home loan through Oplo which we very nearly went with but something was holding me back.. I have never had a secured debt apart from my mortgage and it just didn’t feel right! 

I wanted to consolidate the debts to have 1 payment as our outgoings on all the different debts are so high just now. We can make all our payments and I’ve never missed any but just wanted to be more comfortable and be able to save some money. But we’ve trusted our instincts and decided not to do it. 

We both have good stable incomes (approx £4600 joint net income per month) I pay a large chunk of my monthly salary to a very good pension - taken off before my net take home pay so we are saving for retirement and have been for about 20 years.  I also have a side Etsy /Instagram business I can make money on. We have 2 kids and a nice home.

I know I’ve done the right thing, I just now need to change my habits, get my finances in check and try to pay down debts. I just don’t know where to start and it all seems so overwhelming! 

Any advice is so very welcome x

enthusiasticsaver

First of all you made the right decision in not turning unsecured debt into secured.  Even though you have the equity there moving the debt on to your mortgage means you will still be paying for that for the remaining term of your mortgage which is much more expensive than making a realistic plan to repay it by budgeting and overpaying. The second reason it is better not to consolidate debt is that you do not change the spending habits which got you into debt in the first place and that is critical to making sure you are not in this position again. 

The positives are that you have a good income and you are saving for retirement.  I am going to hazard a guess though that you do not have emergency savings and do not save for annual costs like holidays, christmas, insurances, car and house repairs etc etc.  Doing a budget is critical to sorting out how much you can afford to pay towards the debt every month and how you repay it can be done in several ways.  

Usually overdrafts would be tackled first especially as most are charging 40% interest now.  You don't mention whether you have one but that should be a priority. 

Building up emergency savings is another top priority to save you having to put an unavoidable expense on credit.  The normal recommended amount is £1000 and then when the debt is sorted you should go for 3-6 months of monthly expenditure. 

Tackle the credit cards in order of the most expensive first.  If they are all on 0% and if they are not then see if they can be moved to 0% deals then tackle them in the order of the ones with the deals expiring first. 

Doing an soa is a good start so you can see where you are overspending.  There is a link below. 

http://www.stoozing.com/soa.php

Ellalou

Thanks for replying, some good advice! 

We only have £300 on an overdraft but that’s my first thing I’m clearing this month. Then get it removed from the bank so we have no overdraft. 

I need to sort out an emergency fund, I have already put away £100 since getting paid a couple of days ago, I plan on putting the £240 for the next 2 months that we would pay for council tax also into an emergency fund. 

We have 4 credit cards - 
MBNA - £5800 - on 0%
Virgin - £6700  - not on 0%
BOS - £5300 - not on 0%
M & S - £340 - not on 0% 

do I clear the lowest balance one first - M & S so I have cleared a credit card? Then start on the others? 

The problem I have is I’m not able to get a balance transfer card to put these debts onto 0% cards as I have so many open credit accounts. So although my credit score is high, my affordability is low. Hopefully as I pay things off this will change and allow me to move the debit onto 0% cards? 

The other debts are 3 x loans. One of which has around £1150 outstanding and will be clear by August. So then I will be down to 2 x loans which are for larger amounts (but still lower APR’s than the secured loan was offering) 

I will do a more detailed SOA and see what I can pay down! 

sourcrates

People who earn more, tend to spend more, and also have more debt, in relation to their income.

They also tend not to budget very well, and spend willy nilly.

Now I haven`t seen your SOA yet, but I`ll guess there is a surplus of cash on paper, but you never seem to have that left over at month end.

On an income such as yours, I`d say overpaying your debts by £1000 per month would see you debt free in less than 3 years.

You just need to control where your money is going.

fatbelly

I see you are having problems keeping the cards on 0% deals. Have you worked through this guide?

https://www.moneysavingexpert.com/credit-cards/best-0-credit-cards/

and checked your credit history (it's on this guide)

https://www.moneysavingexpert.com/credit-cards/bad-credit-credit-cards/

You're saving two council tax payments into an emergency fund. Remember if you're in Band A-D there's a £150 credit coming in April

enthusiasticsaver

Ellalou said:

Thanks for replying, some good advice! 

We only have £300 on an overdraft but that’s my first thing I’m clearing this month. Then get it removed from the bank so we have no overdraft. 

I need to sort out an emergency fund, I have already put away £100 since getting paid a couple of days ago, I plan on putting the £240 for the next 2 months that we would pay for council tax also into an emergency fund. 

We have 4 credit cards - 
MBNA - £5800 - on 0%
Virgin - £6700  - not on 0%
BOS - £5300 - not on 0%
M & S - £340 - not on 0% 

do I clear the lowest balance one first - M & S so I have cleared a credit card? Then start on the others? 

The problem I have is I’m not able to get a balance transfer card to put these debts onto 0% cards as I have so many open credit accounts. So although my credit score is high, my affordability is low. Hopefully as I pay things off this will change and allow me to move the debit onto 0% cards? 

The other debts are 3 x loans. One of which has around £1150 outstanding and will be clear by August. So then I will be down to 2 x loans which are for larger amounts (but still lower APR’s than the secured loan was offering) 

I will do a more detailed SOA and see what I can pay down! 

Paying off the overdraft and starting the emergency fund is a good start.  As the M and S balance is so low I would clear it then either put it aside in the hope they may offer you a 0% deal or close it.  You are right that as the debt decreases you will get more offers. Try the credit card eligibility checker on this site to find out the odds of you getting a deal or have you already applied for one?  That is a soft search so shouldn't affect your credit record. Try the links quoted by @fatbelly

The other balances on the cards are all similar so I would check the interest rates to see which ones to tackle first and set the others for slightly above minimum.  Leave the loans unless they are astronomical rates of interest so that is the first thing you need to find out.  Doing a budget is critical and as sourcrates says often higher earners are more guilty than most of taking on too much debt so you are not alone. Do the soa and we can advise further. 

You say you are saving for retirement and pay a good chunk of your income into your pension.  Are you a higher rate tax payer and are you overpaying?  If so that is a tax efficient way to save for retirement but if you are paying high interest on your debts it may be better to just pay enough for now to maximise your employers contribution and divert the extra income towards your debts even if it means you don't get the additional tax uplift on your pension while you are dealing with the cards and loans. 

GeorgianaCavendish

Agree with @enthusiasticsaver on clearing off the M&S card as it’s so low. Then check which of your other credit cards is the highest interest and tackle that next. 

I used the snowball method for my debts, so as one was cleared I moved the money I was paying to that each month over to another debt. Once the first loan is gone, switch the money you spent on the monthly repayment over to one of the credit cards before you get used to having the cash available again. 

Good luck! 

EssexHebridean

Well THERE'S a sensible first post - well done for reaching the right conclusions about what not to do, and how best to tackle your situation! 

Don't scrap the overdraft right down to nothing - see if you can leave a small amount, maybe £50 in place as at least until you get properly used to working to a straight zero balance it means that you won't be hit with unauthorised OD charges if you do accidentally stray over by a few pounds. 

Also agree on getting shot of the M&S card first. I'd also agree you then need to arrange the others in order of the interest rates - highest > lowest.  You can also box a bit clever though - if they are currently set to take minimum payments, change that to a regular amount a little above the current minimum instead, so if your minimum on one card is £98.70 then you set a regular payment for £100 a month. That way without even noticing you make more of an impact over time and it has the advantage of being easier to budget too as you know the exact amounts going out each month. (And it is round amounts and who doesn't want round amounts?!)  As GC says - snowballing for making the biggest impact is the way ahead. Let the loans tick over - and as for the MBNA card don't lose sight of the end date for the 0% deal - hopefully by the time it's approaching you'll be in a better position to shift that to a new deal though. When that loan finishes in August shift the monthly payment from that straight to the priority card from the next month otherwise it will get absorbed into your disposable income.