Pension options to deal with debts / mortgage situation

zAndy1

Kim1965 said:

I dont think many on this forum think its a win win. Your spending habits are not in line with most people catering for retirement. You have a good income, it shouldnt  be too much trouble to turn your situation around. 

Yes that's true but I clearly need to try and clear the credit card debt one way or another before the promotional 0% rates end and I end up with that sort of balance at standard rate. I just want to clarify something, is the consensus that I shouldn't use my pensions to get out of this debt situation and I should instead look to enter into a DMP or something to deal with the debt? I really want to be debt free because once I am we will have over £1000pm spare income even after overpaying the mortgage by £1000pm. My wife has just had a substantial £8k pa salary increase which is definitely going to help. Really don't know what to do tbh, think I need to talk to a financial advisor as my brain hurts...

QrizB

zAndy1 said:

... is the consensus that I shouldn't use my pensions to get out of this debt situation and I should instead look to enter into a DMP or something to deal with the debt?

The consensus is (or seems to be) that you need to get a firm grip of your household finances. Only then will anyone (you, us, random folk on the Clapham omnibus) be able to say whether using the pension TFC to pay down your debts is a good idea, or not.

Really don't know what to do tbh, think I need to talk to a financial advisor as my brain hurts...

You don't need a financial advisor, you need to talk to Stepchange or similar.

Between you and your wife, you've got a £60k+ annual income (is that gross, or net of tax & NI?).

We're all struggling to understand how you can spend all that and still run up £55k of unsecured debt (much of it without knowing how), and concerned that you'll end up in the same situation in another 5-10 years but then without the pension TFC to get you out of the hole.

Have you got a household budget?

Qyburn

zAndy1 said:

Just out of interest btw, I got an annuity quote for my £130k DC pension funds and was quoted £8100pa (single, fixed amount) from age 55. I find that pretty unbelievable really, it's way more than I thought it was going to be

Why would anyone consider an annuity with no allowance for inflation, or anything for a surviving spouse? How do you and you wife's pension arrangements compare? If you're the higher earner then you might want more than 50% for her.

Sunnylifeover50plan

Maybe try writing down a simple problem statement such as "no matter how much we earn we have more money going out than coming in". This is the issue you face and you need to understand why that is before you can find potential solutions. 

MallyGirl

I would suggest that you head over to the Debt-Free Wannabe board where you can share your figures/budget and get sensible advice on paying off the cards ASAP. With that much take home pay you should be able to do that, snowballing the card repayments, without raiding your pensions. Once they are gone you can look to overpay your mortgage and bring down the LTV which could put you in a better position to remortgage if needed.
https://forums.moneysavingexpert.com/categories/debt-free-wannabe

zAndy1

I hear what people are saying here , with my wife's recent payrise we have surplus income each month now as you'd expect but it's still going to take absolutely ages to pay credit cards off especially if interest starts kicking in. The £32.5 tax free lump sum would save me at least £7200pa for the next 3 years at least on loan/credit card monthly payments + interest saved on the mortgage if I target that money at overpaying the mortgage instead. And I'd be surprised if that wouldn't have an overall greater financial benefit to me than leaving that £32.5k in the pension funds. I'm not that worried about the pension situation, even if I take the max tfls me and my wife should have a healthy combined pension income, my priority right now is getting the debt down and overpaying the mortgage which will save us a fortune in interest over the next 10 years and ultimately enable us to hopefully remortgage onto a better rate. Dunno, it's a tricky situation completely of my own making. What I will say is this, once the credit cards are cleared they will not be getting used again. And I know that's easy to say but I'm absolutely resolute on that

zAndy1

QrizB said:

zAndy1 said:

... is the consensus that I shouldn't use my pensions to get out of this debt situation and I should instead look to enter into a DMP or something to deal with the debt?

The consensus is (or seems to be) that you need to get a firm grip of your household finances. Only then will anyone (you, us, random folk on the Clapham omnibus) be able to say whether using the pension TFC to pay down your debts is a good idea, or not.

Really don't know what to do tbh, think I need to talk to a financial advisor as my brain hurts...

You don't need a financial advisor, you need to talk to Stepchange or similar.

Between you and your wife, you've got a £60k+ annual income (is that gross, or net of tax & NI?).

We're all struggling to understand how you can spend all that and still run up £55k of unsecured debt (much of it without knowing how), and concerned that you'll end up in the same situation in another 5-10 years but then without the pension TFC to get you out of the hole.

Have you got a household budget?

Fair comments, I earn £57k gross, wife earns £30k gross (recent Sept 2022 payrise from £21k previously). 
Rough figures...
Income £5200 net
Mortgage £820pm (£870 with life insurance)
Gas/Elec/Water £150pm
Council tax £200pm
Loans £430pm (£395 me , £34 wife)
Sky/Internet/amazon/other subscriptions £100pm
Mobiles £20pm
Credit cards £1000pm (I pay more than the min already)
Food shopping £400pm
Petrol / Bridge toll £300pm
Misc spending £300pm
Car and House ins £80pm
Car tax £40pm
Pet insurance £60pm

Left over £1200pm approx 

So yes I'm struggling to understand how we're in this situation but we are. But imagine if I pay the loan and credit cards off how much healthier the situation will be (it's already on the face of it pretty healthy). Sure I could chuck another £1000pm at credit cards but it's still gonna take 3 years to pay them off if I do that and not make any dent in the mortgage. Anyway this is getting OT for the pension forum but posted for info 
And appreciate the concern but there's no way I'm ending up in this situation again in 5 years time, not a chance

MallyGirl

One thing I would say is that it is rarely a great idea to use pension money to pay off a mortgage. The scales on that have swung a bit the other way recently with investment performance down and mortgage rates rising but you need to not think of your pension pot as a static amount. Hopefully it is invested and over time will grow - potentially at a rate somewhere around mortgage rates in the future. Freeing up cash to pay off cards at 20/30/40% APR is different. 

JoeCrystal

Well, you can always get rid the pets! Unpopular suggestion that might be! Cancel Amazon and Sky. Review all subs and cancel everything that is wants rather than needs. Internet should be kept wonder it is actually a need rather a want but can check if you can get cheaper/slower packaging. If your water rated rather than metered, it might be worth checking if this can be changed over (only if it is cheaper though.) 

Make a record of every pennies spent through the month. Can use spreadsheet for that. Other than that, your budget look rather reasonable!

jimi_man

My tuppence worth. Using your pension money is a bad idea. As others have said, you need to gain control of your finances such that you can manage without taking money from your pension. 

You’ve got £1200 surplus every month looking at the above figure so that needs to be thrown at paying off your debts - I’m guessing credit cards first as they’ll be the ones with the highest interest. If it takes three years then so be it. Three years of managing your finances so you can pay something off is likely to be much better than ‘instant’ results by robbing Peter to pay Paul. Otherwise you’ll think your fine again and it will encourage you to ‘splurge’ as you clearly are that way inclined. 

At the very minimum you need to be be able to manage on your current income for at least a couple of years to ensure that you aren’t spending more than you earn. 

I’m a little confused about the mortgage situation. Your original post suggests you owe £164k and it’s interest only so you aren’t actually paying it off unless I’ve missed it? 

Personally I feel that using your pension is a bad idea - that money is earmarked for your retirement.