Advice required

zAndy1

I've been advised to post in here on this thread I originally posted regarding advice on taking 25% tax free lump sum payments to pay off my debts...
https://forums.moneysavingexpert.com/discussion/6398014/pension-options-to-deal-with-debts-mortgage-situation/p1

This is my SOA

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]

Number of adults in household........... 2

Number of children in household......... 0

Number of cars owned.................... 2[b]

Monthly Income Details[/b]

Monthly income after tax................ 3380

Partners monthly income after tax....... 1900

Benefits................................ 0

Other income............................ 0[b]

Total monthly income.................... 5280[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 820

Secured/HP loan repayments.............. 0

Rent.................................... 0

Management charge (leasehold property).. 0

Council tax............................. 190

Electricity............................. 100

Gas..................................... 80

Oil..................................... 0

Water rates............................. 30

Telephone (land line)................... 0

Mobile phone............................ 20

TV Licence.............................. 13

Satellite/Cable TV...................... 53

Internet Services....................... 32

Groceries etc. ......................... 300

Clothing................................ 50

Petrol/diesel........................... 250

Road tax................................ 40

Car Insurance........................... 45

Car maintenance (including MOT)......... 40

Car parking............................. 0

Other travel............................ 0

Childcare/nursery....................... 0

Other child related expenses............ 0

Medical (prescriptions, dentist etc).... 20

Pet insurance/vet bills................. 63

Buildings insurance..................... 20

Contents insurance...................... 20

Life assurance ......................... 50

Other insurance......................... 0

Presents (birthday, christmas etc)...... 40

Haircuts................................ 20

Entertainment........................... 50

Holiday................................. 300

Emergency fund.......................... 30[b]

Total monthly expenses.................. 2676[/b]

[b]

Assets[/b]

Cash.................................... 0

House value (Gross)..................... 250000

Shares and bonds........................ 0

Car(s).................................. 9000

Other assets............................ 0[b]

Total Assets............................ 259000[/b]

[b]

Secured & HP Debts[/b]

Description....................Debt......Monthly...APR

Mortgage...................... 164000...(820)......6[b]

Total secured & HP debts...... 164000....-.........-   [/b]

[b]Unsecured Debts[/b]

Description....................Debt......Monthly...APR

Halifax........................1087......17........0        0% until 04/07/23

MBNA...........................11600.....120.......0      0% until 19/04/23

Barclaycard....................700.......24........18.68

Ikano Loan.....................900.......34........0

Tesco loan.....................14800.....395.......2.3

Virgin.........................10600.....107.......0       0% until Aug 23

Lloyds.........................7000......102.......3.9      £6163 3.9% until 30/04/23, £516 3.9% until 23/11/24 and £402 standard rate

Nationwide.....................3500......50........12.9

Nationwide.....................7000......100.......0[b]      £5439 0% until 24/07/23 and £1500 0% until 03/11/23

Total unsecured debts..........57187.....949.......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 5,280

Expenses (including HP & secured debts). 2,676

Available for debt repayments........... 2,604

Monthly UNsecured debt repayments....... 949[b]

Amount left after debt repayments....... 1,655[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 259,000

Total HP & Secured debt................. -164,000

Total Unsecured debt.................... -57,187[b]

Net Assets.............................. 37,813[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.

Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

As you can see we have a very healthy surplus but also a lot of unsecured debt. The vast majority of the debt is currently at 0% interest but that will change next year when the promotional 0% rate ends, the dates range from April 23 to Nov 23 when the 0% interest rates expire. I was considering taking 25% tax free lump sums from my DC pension funds which have a total value of £130k so could take £32k tax free which would make a huge dent in my credit card debt and allow me to then throw the money I'm currently using to pay credit cards to overpay the mortgage instead which is interest only with 10 years left. 
I would appreciate any advice as to the best way to tackle this situation , obviously if I don't take tax free lump sums there's no chance I'm going to get the credit card balances paid off so interest will then start kicking in next year and make things a lot more difficult than they are now. I'm going to throw as much at the credit cards as I can , £2k per month is the target , not sure there's much else I can do really but I had convinced myself I was going to take the 25% tax free lump sums from my pensions to sort this mess out and get rid of my credit card debt once and for all. Personally I'm still tempted to do that but the consensus of opinion on that other thread was that it would be a mistake and I shouldn't consider it. Happy to hear other peoples thoughts and opinions. And yes I know it's a mess and no I aren't going to get into this state again if/when I do get the credit cards cleared. 

Thanks

fatbelly

I haven't read your other thread yet but it looks to me like a snowball situation, where you overpay your monthly amounts, concentrating on the highes interest ones first. 

As each debt is paid off you have more to throw at the next one. You can plan your paymens using this calculator

https://www.lemonfool.co.uk/financecalculators/snowball-calculator.php

DrCarrie

I am no expert on long-term financial planning, but I would say your pension is precious.

Reducing and paying off debt has given me the opportunity to learn about my spending habits. I have been recused from my debt by windfalls on 2 occasions. It was a relief but I didn't learn how to not spend, and what is really important to me. 

As fatbelly says: snowball your debts and see what you can achieve.  It's been a real journey. 

It may feel like a really big mess, but I reckon you can achieve a lot. You could give it a go for 6 months and review it?

But generally - stealing from our future whether that be raiding the piggy bank or using a credit card, leads to regret (in my experience). 

P.s. I think your SOA may need a bit of work - your gas and electric look low for example.

madaboutspots

What stands out for me is you have a surplus each month which many households would be happy to have as a full income. There appears to be nothing whatsoever in your SOA that indicates how to debt has been accrued. 

Have you actually identified how you built up so much debt? You’ve been overstretching by considerably more than your available £2,744 each month. I ask because if you don’t know how this has occurred then how do you stop the debt building.

So once you’ve identified/addressed that point - why the rush to pay it all off? What harm is it doing you now that makes taking some of your future security a more comfortable plan? Is it your concern that at some point in the future you might not find 0% available or is it just that now you’ve decided to address the debt, you feel impatient and just want it gone?

Everything that is hard to gain/achieve is more worthwhile than those that come easily. If you just raid your pension to make this all magically go away - what lessons do you take from the situation you’ve got yourself into?

Put in the graft to clear the debts. You can make an enormous difference to the balance by knuckling down and spending less on whatever and using that available money to clear this. Use the time to see just how much you can achieve. Your surplus if genuine and used to good effect is £32,928 in 12 months. That’s a considerable dent! 

Ever seen Karate Kid? Wipe on/wipe off - he hated it, thought he was learning nothing. Only to find he gained strength and patience he needed. 

I’m guessing your most beneficial option would be to make yourself learn and just chip away. £2,744 is to most, a bit more than chipping but it’s all relative. 

RAS

You really need the end dates of the 0% deals and the rate they revert to on your SOA, and the end dates on the loans.

Meantime, unless the APR 23 one is over 18.3%, clear the Barclaycard next month. Then tackle the smaller Nationwide account at 12.9%.

Set all the accounts to pay slightly more than the minimum; there are suggestions that just paying the minimum every month makes lenders nervous and paying more encourages them to offer you better deals down the line.

Don't raid your pension.

pelirocco

fatbelly said:

I haven't read your other thread yet but it looks to me like a snowball situation, where you overpay your monthly amounts, concentrating on the highes interest ones first. 

As each debt is paid off you have more to throw at the next one. You can plan your paymens using this calculator

https://www.lemonfool.co.uk/financecalculators/snowball-calculator.php

Snowball  is paying debt by paying the lowest balance first
Paying the highest interest debt first is avalanche  I believe

The advantage of paying lowest debt first is its
A  . Motivational 
B   . It frees up the amount you were paying to that debt and increase the overall amount you have to throw at the debt

RobM99

RAS said:

You really need the end dates of the 0% deals and the rate they revert to on your SOA, and the end dates on the loans.

Meantime, unless the APR 23 one is over 18.3%, clear the Barclaycard next month. Then tackle the smaller Nationwide account at 12.9%.

Set all the accounts to pay slightly more than the minimum; there are suggestions that just paying the minimum every month makes lenders nervous and paying more encourages them to offer you better deals down the line.

Don't raid your pension.

...and that sums it up in one short post!

RAS

Hmm. Having read your thread on the pensions forum, you obviously need a lot more financial discipline in order to sort out your finances.

Since you don't know how you've managed to accrue £51K in debt (except you've been using credit cards to buy equity in the house?), you need to nail down what has been happening.

Get together the last year's credit card and bank statements, and go through line by line and allocate all the expenditure over the year to one of the lines in a detailed SOA.

Have you or the missus got a latte habit? A lunch out habit? Inclined to buy a few rounds in the pub or takeaways? Nice weekends away? You may not have expensive holidays during COVID but were they a feature of life before? Or do one of you buy nice clothes and given them to the charity shop a year later, or buy toys that only get used occasionally or for a short while.

It doesn't really matter what it is but you both need to understand how you've got in this mess. So that you can tackle it over the next decade.

Life isn't going to be so much fun, perhaps, but you need to choose between fun and having a secure roof over your heads.

Now may not be the time to re-look at your mortgage, but if rates start to go down, it may be worth visiting an advisor in the next year or two and seeing if you can get a better deal, or even go repayment.

Clueless56

Here is my suggestion:

Month 1: clear Barclaycard + £300 off Nationwide 12.9% card

Months 2 & 3: £1200 p/m off Nationwide 12.9% card 

Month 4: clear balance from Nationwide card + remainder off Lloyds card

Months 5-10: £1200 p/m off Lloyds card

Month 11: clear balance from Lloyds card

As you clear cards down you may well be offered 0% deals, so can reappraise which balances would be best to move.  I haven't included the loans as I don't know much about them - can they be overpaid without penalty? or transferred to a 0% card in the same way as credit card balance can?

You could speed up the process by ditching the satellite TV and selling items you no longer use; also, sell one of the cars as I believe you work from home.  Selling one of the cars would both give you a lump sum to pay off debt and reduce monthly outgoings.

Other more knowledgeable and experienced posters may well give better suggestions but I thought I'd get the ball rolling.

madaboutspots

Obviously this is a very simplistic calculation and doesn’t consider interest charges or saved interest payments on the mortgage but…

£2,744 x 80 = £219,520 … so in under 7 years that’s debt and mortgage free. 

£2,744 monthly (not even using the £800+ savings on mortgage interest!) for the remainder of the 10 years = £109,760 extra in your pocket/pension. 

All without raiding your pension.

You seem to ask different people the same question despite repeatedly being strongly advised to NOT raid your pension. I can’t see the benefit in asking for advice if you insist on ignoring it. 

I cannot understand how you can have become bankrupt before and now in nearly £60k of unsecured debt with the addition of an interest only mortgage and have no idea how you got here. I don’t think you’re being honest with yourself which makes any advice fairly pointless. 

If you genuinely want to sort this - it seems you’ve already had the sensible advice. You need to decide for yourself if you’re going to sort this out or go round the loop again and again. Maybe a miserable penniless retirement doesn’t worry you. Maybe bankruptcy’s not so bad in your view. I doubt most of us would choose a life of such constant debt for nothing we can identify but it’s your life so your choice. 

Sea_Shell

Nothing in your SOA for entertainment?

Obviously TV package listed separately.

Where would you classify any meals/drinks out, takeaways, admission fees for days out,  magazines, cinema, hobbies etc.?