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Advice required
zAndy1
Forumite 241 Posts
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
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
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
2
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Replies
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
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.
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!
MFW date 2nd Jan 2024
Literally counting the days! 🥳
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.
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
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.
£2,744 x 80 = £219,520 … so in under 7 years that’s debt and mortgage free.
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.
MFW date 2nd Jan 2024
Literally counting the days! 🥳
Obviously TV package listed separately.
Where would you classify any meals/drinks out, takeaways, admission fees for days out, magazines, cinema, hobbies etc.?