Pension options to deal with debts / mortgage situation

SusieT

Ditto the others saying to leave the pensions alone. You need to stop using the cards straight away. Then look seriously at what and where you are spending - groceries for 2 people and pet(s) should be way under £400 a monty unless you are feeding a lot of wolfhounds! Meal plan and only buy what you need, shop at places like Lidl and Aldi, buy own brands but make sure they are cheaper. Look at Olio or Too good to go places in your area. Turn heating down by a degree, cut back on tv packages and lose any you do not use often. Stop unnecessary subscriptions. Go to free outings or something like inexpensive NT places, take a picnic instead of buying when you are out - also take meals to work unless you have a subsidised canteen, and no coffees from C0sta or Starb0cks.ets. Plough everything into the cards, pay at least £1 more than the minimum so that the credit history shows you are paying over minimum. 
Fill in the SOA calculator as best you can, including the interest rates 
https://www.lemonfool.co.uk/financecalculators/soa.php  click format for MSE then copy and paste it into a new thread in the Debt free wannabee section, and you will get a lot of help there. If possible put in the dates the interest free offers end.
 
Basically, cut back, set a budget, stick to it and take a bit of pain now, then in a couple of years time see where you are and IF you work hard at rectifying the financial side you should be in a very different position and be able to keep a much better pension. 

zAndy1

german_keeper said:

Sorry if I have missed your answer to this Andy but a few posts have touched on your interest only mortgage. Is it really interest only and if so do you have anything in place to pay off the capital at the end of it? 

Yes interest only and no nothing in place to pay it off

zAndy1

There seems to be a bit of an assumption that we need our current level of income to have a comfortable retirement. That is not true at all. With no debt or loan payments and no mortgage to pay we could have a perfectly comfortable retirement on £45k a year of that I have no doubt. And let me also make something else clear. Once the debt is cleared I will not be using credit cards to pay for things again, basically there will be no need to as we will have plenty of spare income anyway. It's only the last month that we've had the level of spare income we have now due to my wife's pay rise. I was going to overpay the mortgage with it but yes I guess it would be more sensible to clear the £4k ish that's at standard rate (the vast majority of that is at 12.9% which is the standard rate on my nationwide select card). My mortgage company has recently sent letters asking how we intend to pay off the mortgage at the end of the term and I told them I was going to overpay and attempt to pay it off in the remaining term. Ok, I'll fill that SOA calculator in and think again about taking the pension lump sums and throw as much as possible at paying off the credit cards but I obviously aren't going to be able to do that before they start incurring interest and when that moment comes if I can't refinance the credit card balances at 0% I might feel there is literally no option but to take the lump sums and pay the cards off but let's see what happens, who knows I might win the lottery before then

Admiral_Barbarossa

zAndy1 said:

There seems to be a bit of an assumption that we need our current level of income to have a comfortable retirement. That is not true at all. With no debt or loan payments and no mortgage to pay we could have a perfectly comfortable retirement on £45k a year of that I have no doubt. And let me also make something else clear. Once the debt is cleared I will not be using credit cards to pay for things again, basically there will be no need to as we will have plenty of spare income anyway. It's only the last month that we've had the level of spare income we have now due to my wife's pay rise. I was going to overpay the mortgage with it but yes I guess it would be more sensible to clear the £4k ish that's at standard rate (the vast majority of that is at 12.9% which is the standard rate on my nationwide select card). My mortgage company has recently sent letters asking how we intend to pay off the mortgage at the end of the term and I told them I was going to overpay and attempt to pay it off in the remaining term. Ok, I'll fill that SOA calculator in and think again about taking the pension lump sums and throw as much as possible at paying off the credit cards but I obviously aren't going to be able to do that before they start incurring interest and when that moment comes if I can't refinance the credit card balances at 0% I might feel there is literally no option but to take the lump sums and pay the cards off but let's see what happens, who knows I might win the lottery before then

If your £45,000? Is based on your current pension! And your taking a lump sum at 55. Good luck. You have a mortgage at around £169,000 to pay off in ten year until you are 65 as well!

at your current rate of spending, unless you do as suggested, a SOA so people can advise, you’ve got no chance of a pension, or paying your mortgage off.

You did not think of this when your were bankrupt or bought the £3,100 tele. I’m afraid, you will not fit it now!

Youre finances are in cloud cuckoo land.

Preacher64

Why not take a step back and continue to pay down your credit card debt with your surplus cash while you still have the 0% facility and once that expires if you are unable to move to another 0% deal, revisit your options.

At that point, your debt will be smaller, your pension pot may have recovered somewhat from recent losses and, as a last resort, you may be able to achieve the outcome you have set your mind to while taking a smaller amount from your pension.

You may find that seeing the debt reducing while finding ways to cut your spending and increase the amount paid toward the outstanding debt will let you see that there are other options to robbing your future self of a more comfortable retirement.

Grumpy_chap

zAndy1 said:

There seems to be a bit of an assumption that we need our current level of income to have a comfortable retirement. That is not true at all. With no debt or loan payments and no mortgage to pay we could have a perfectly comfortable retirement on £45k a year of that I have no doubt. 

I don't wish to cause upset and this may sound harsh, but there seems to be an absolute denial of reality here, failure to grasp the magnitude of the situation, or a genuine misunderstanding of the advice being given.

It is great that the OP is confident that a joint retirement income of £45k will be sufficient - after tax, that will be around £40k per year max, so around £3k per month.  This is a lot more than many people have but much less than the £62k, £5.2k per month the OP currently enjoys.

At most, the OP may achieve the retirement income of £45k from the current pension - it is an optimistic best case to be honest.  BUT, the OP plans to draw the pension lump sum early to clear debts in the short term.  This does not work as it will be spending the same money twice - the lump sum that is used now to clear debt cannot also be retirement income.

The OP also states they will be enjoying retirement with the reduced income because they will have no debt or loan payments and no mortgage to pay. 
Except the OP's plan to pay down debts is to use the pension lump sum for a partial pay-down of the CC debts (which, as above, does not work in addition to using the same money to fund a future pension).
The OP also has the mortgage on interest only basis and nothing in this thread indicates there is any plan to pay down the capital and there is unwillingness to down-size.

OP, please can you tell us, what is this loan for?  Is it for a car?

zAndy1 said:

Personal Loan with monthly payments of £395 , 40 payments remaining, interest rate 2.3%, settlement amount approx £14k

At present, the OP has nett income £5.2k per month, £62k per year.
The OP states they will be comfortable in retirement on nett income £3k per month, £40k per year
If the OP can live on £3k per month in retirement, why not start living on that immediately, that will mean £2.2k per month to use to clear debts.

The OP has debts:
£164k mortgage
£14k loan (?car?)
£41k credit cards
£1k sofa
TOTAL £108k  edit to correct my appalling arithmetic £220k

There is some interest being accrued, about £1k per month, so the £2.2k leaves £1.2k to reduce debt balance, that will take 90 months, or 7.5 years.  The OP needs to start right away as there are only 10 years or so until the OP will reach retirement age.

Here's an updated ACTION PLAN:

1. Cut up the credit cards
2. Prepare SoA and share in DfW section of forum
3. Sell the car and clear the associated loan, buy a cheap runabout
4. Cancel unnecessary expenses (SKY / internet / Amazon) and luxuries (coffee shops, meals out, £300 monthly misc)
5. Limit joint expenditure to £3k per month
6. Pay the absolute maximum you can into reducing the debts

NOTE:  Nothing in the plan involves using the pension early, and that is the common theme from every contributor trying to give advice.

I fear that the OP won't be willing to take sacrifices to achieve the above and was dead-set on the decision to use the pension plan to clear debts and only really came here to seek validation of that as a good solution.  That validation is not going to be forthcoming.  
I further fear that if the OP does clear the debts using pension, the OP will continue to spend and be back here in a short while in mush the same position as today, but nearer to retirement so less years to sort the issue and a depleted pension fund.

OP - I wish you luck.  I wish you the humility to step back and listen to the comments that are being made before making any decision.

QrizB

Grumpy_chap said:

At present, the OP has nett income £5.2k per month, £62k per year.
The OP states they will be comfortable in retirement on nett income £3k per month, £40k per year
If the OP can live on £3k per month in retirement, why not start living on that immediately, that will mean £2.2k per month to use to clear debts.

OP is already paying £2100pm on servicing debts, per the opening post.

£820pm on mortgage

£395pm on car loan

£700pm on credit card minimum payments

... And still has £1200pm spare, or so they say.

Sea_Shell

I have to agree with almost everyone's comments so far.

What I'd add is, that the festive season is just around the corner.

It is usually a "big deal" for you?  Blowout spend?  Food, presents, new decorations each year etc.

If so, I think you need to both start mentally and financially planning for a much smaller affair.  Fess up to wider family if you usually spoil them too.

The best gift you can give yourselves is to not buy "stuff" and pay off more of the debt instead.





ETA - I just read that back and realise I sound a bit "Band Aid" there. 

🎶The greatest gift they'll get this year is.....less debt!!!🎶

wjr4

Speak with stepchange about the debts, leave the pension alone, switch to a repayment mortgage if you can, downsize any expensive cars (you’ve failed to mention which cars you have). Stop spending like you have more money than you do. A lot of people would love to have your income, don’t take it for granted and live beyond your means. 

Admiral_Barbarossa

OP has seen sense and moved his thoughts to the Debt Free Wannabe Board.