Asset Rich, Cash Poor - Me vs £130k debt mountain

enthusiasticsaver

I am sorry you felt some of the comments were harsh but I think many of us thought the way you seem set on getting your finances sorted wouldn’t work after many years of seeing others going down the route you intended (robbing Peter to pay Paul, cashing in on pension early) and then eventually either doing a DMP or even bankruptcy when the debt predictably increased to an unmanageable amount. It is however your call and it sounds like you do have a few good ideas especially when it comes to limiting your wife’s overspends. I don’t think she can be trusted with credit.

Unfortunately the rest of your unusual expenses this month ideally would be budgeted for like dentists (why so high?) and car repairs. That means saving for them which obviously you are not in a position to do. Hope you feel better soon. 

What sort of pension do you have? Defined contribution or defined benefit? Pension wise give free advice.

JillyC8

Can you not get rid of the Volvo? Either altogether or replace it with a smaller, more economic car, seeing as your wife doesn't work.

Also, can't her monthly allowance be less whilst she isn't contributing? £400 to £500 to 'waste' every month is a lot of money if it isn't being put to good use. Of course, there needs to be something; but a dress or a book or suchlike wouldn't cost that much. I don't think I would be very encouraged to go and find a job if my partner gave me £400-£500 to 'waste' as I wanted!

Just think you could be putting half of that towards paying off your debts and she could still have a dress or a book etc.

conkerlad

sparks_2023 said:

I think the comments here are starting to verge on harsh.

The OP really has 1 issue - sort out the root cause of the problem. This is the availability ( limit level ) and use of new credit.

As for the pension drawdown - not everyone has a £200K pot - that is a bonus. My view is that ( as long as the credit leak is stopped ) the OP has actually got a pension pot balance they haven't been able to afford. £200k pot + 50k debts or £150k pot and no debts ( or, say, £175k pot + 25k debts ) ? is a reasonable debate for the OP to have.

But high danger that it becomes 150k pot + 50k debts if the root cause is not addressed.

Me ? Given selling the car is ruled out, I'd default 1 debt to cut off future credit for 6 years, take the drawdown and close the credit accounts ( maybe leave 1 with a low limit ) and then reboost the pension and attack the mortgage going forward. But that's just me.

With all due respect, the root cause is not a money issue, it is the consequence of something that none of us are qualified to advise in.

I am sorry but a default will not disconnect someone's ability to obtain credit, especially when the OP is asset wealthy with a decent income, so this in my book is bad advice because you could have 20 defaults and you'll be able to get credit, especially secured loans.

Having read your thread also, defaults are not a tool to be used to clearing debt.

OP is very head-strong and that is both a good thing in that a lesser man may have broken by now but a bad thing in that a captain will go down with the ship.

In terms of Klarna, paypal etc, I would contact them and put get them to implement blocks using her phone number, e-mail.

Best wishes

katsu

What do you want to preserve your credit record for?

What is it that you think you'll need to borrow more money for in the next 6 or 7 years? 

Whatever you borrow needs paying eventually so I'm not sure why you see it as so necessary?  

Maybe thinking about that might be helpful to you as I found myself wondering from your posts what credit needs you'll have in the next 6 years/ as you are moving towards retirement and spending less as you'll be living on less. 

It does seem tricky as you say, to work out how to stop your wife using this klarna and PayPal BNPL.  If you are willing to let her credit record get blemishes, maybe that helps? They must do some checks, no?  I also liked the idea above on whether it's possible to self-exclude from their services,  like with gambling, by contacting them. 

I think changing your wife to a pre- pay card or debit card only bank account without overdraft as you said,  seems helpful, so she can only run up limited debt. Maybe there are cards that klarna can't work with? Maybe check their website and see if you are lucky? 

I think some of our feedback feels jarring as we have different perspectives. I've changed a lot over my years here, and it's given me a previous gift of peace of mind. That's what we want for you, a way out of the cycle.

Good luck and I hope some of this helps. 

DebtSurfer

Mortgage Trick

Hi. Haven't seen much of me recently? I'm still here, just busy with some career stuff at work. We got a new department boss, finally a career manager, not a DevOps promoted to head, who still was doing the major part of work... and not doing any proper people management. My chance to pounce and win, and get rid of my "team lead" who is a grumpy 60-year-old German guy picking on me all the time, because I'm 1000x more creative than him.

But I digress

Recently, I read that our tireless headless chicken FCA (yes, same that brought us 39.9% APR overdraft according to the law of unintended consequences, trying to make overdrafts 'fair'... -- and concocted the concept of persistent debt where people perfectly well paying off minimum payments will be attacked again and again with hostile actions) -- is now thinking of making mortgage switch within the same provider subject to stupid "affordability checks" -- which will terribly backfire on people with average or worse credit rating, whose current deal ends, by making them 1) unable to switch from their current provider, 2) being forced onto SVR -- which is currently 7.74%.

Did a research of potential rates prognosis, and decided to "switch & fix" my mortgage while I still can, for a longer period.
My mortgage was a variable, BoE+1.09%, which amounted already in 5.34%, when BoE jacked their rate up again, to 4.5% -- which would put my mortgage at 5.59% already...

Not gonna let them screw me up further!

Having done my research, I chose a 5-year fixed deal at 3.99%. I also chose to extend the duration by 7 months. Good thing to learn was that limitation of 10% overpayments a year is about the original amount of mortgage! Meaning each year I can overpay up to £18k+.

Firstly I had a letter that my mortgage rate is "coming up again" and my payments will be £1,109 a month... That one went into shredder. Slowpokes!
Next, the correct one, said £979 is my new payment. That's £140 back to the budget every month, and sleeping well at nights, knowing that even if BoE makes it to 10% -- this part of my life won't change until June 2029.

By when there'll be only £17k left in my mortgage -- that if I don't overpay. But swear to God, if my deus ex machina plan works, I'll be killing mortgage like there's no tomorrow. By all means possible.

DebtSurfer

News from the Front Line.

My mortgage problem may be now solved, but I still reel from the consequences of 4 terrible months where the endless stream of bills had kicked me down deep into overdraft and the credit cards had to be partially dipped into for normal stuff like dog food and groceries.

Good news, however, is that hopefully, the bills sequence is subsiding, wife -- after 8 weeks being down in her bed -- stood back on her legs, however shaky they are yet, and I was able to stuff her medicines into her finally -- getting her away from dangerous depths of depression. Once she's out, she'll take them herself without reminders.

Some good stuff. 

• I got last £12 of Klarna to whack tomorrow. That was awful. I clawed back £240 of returns which were not processed. So I did it... (For now there's always a next time...) 
• Plus £403 (benefits) are due Monday 22nd. 
• Salary is due 31st. No pay raise yet, I'll see if I'm even eligible for this.
• BG HomeCare is cancelled. My HomeCare £29.78 last payment went away in April. At this price it cost me almost £360 a year. Much more than even most expensive plumber ever charges... also there was £60 per-call excess, killing the value-for-money even worse. Good riddance!
• I need to submit an application to my council so they pay me back the council tax for those nearly 2 months I was on Universal Credit last spring. That could be almost £400.
• £100 due in June from Nationwide. Yes, with my mortgage, I'm an eligible member.

Some annoying stuff:

• Barclaycard keeps jacking interest rates alongside BoE -- the greedy b-stards, neither Nationwide nor Tesco do it. I already spend nothing on my B-Card 2 with the highest interest rate, trying to whack or transfer away this debt ASAP. 
• Also they sent me a blunt FCA style notice about "being in persistent debt" for 18 months. "Could you maybe pay more?" You repulsive idiots, if I could, I would transfer all your balance elsewhere. Reasons: 1) You are the only lowlives jacking up my interest rates after BoE, 2) You took away all my balance transfer, money transfer and benefit offers long time ago and didn't return any of it even when I whacked your balance to zero, 3) Your interest rates are the worst I have, 4) Your non-properly-English-speaking "advisor" couldn't even merge my two cards into one so I would get the rate a bit lower, trying to apply to raise credit limit instead (with guaranteed fail).
• Go fly a kite Barclaycard.

Narrowing the Gap.

This stuff above doesn't bother me much though. Wolves will try and bite the sheep. No use whining wolves are bad. And I'm not your typical sheep though, I'm the one with claws and teeth.

What I'm thinking about is how much exactly from my pension to take as the solution and how much to kill the normal ways.

-- Meanwhile there was my car tax (£240) and insurance (£287) due for the Volvo. And here I had the lightbulb moment! 

Remember, I said, if necessary, I'd be ready to part with the Merc, if that makes the Debt Free Moment closer?

I respect the data, not my hunch. 
I checked and the current amount I can get for it, is about £12,000-12,500.

For last 3 years, the Volvo made just about 3½ k miles, of which 2k probably were attempts to keep it from discharging the battery and getting rusty. She spent most of this time flat in bed.
Numbers?
I bought it for £2500. I paid about £700 tax, its annual services cost me about £3500 in total, plus a few small works. It drank probably about £1k+ worth of diesel. A few tyres. Insurance ate another £1k in total probably. All in all, £9000 or higher wasted money.
Having 2 cars is an expensive thing. In our case, let us admit, we do not need two cars. She is not working and not going to work. 

However, it's a decent, solid looking, zippy (148 bhp, 9.1 sec 0-100km/h), compact executive class car, with ultra high spec (for its age) and relatively good state. Even with 203k miles (mostly motorway) on the counter and 12 years age.
I took it to the garage and dealt with tyres losing pressure. Did a few errands. I was able to get 51 mpg on the motorway.

I sat down with my wife and we had a friendly chat. She agreed that the purpose she wanted the second car for herself is now way gone, and we just don't need 2 cars. She'd be absolutely happy for our family to leave just one car.

So I'm trying to accommodate to the idea of selling the Merc and staying with just the Volvo for now.

I use the car currently for: commuting 3 miles to town centre (sometimes), going to Tesco's, taking wife to the GP surgery and doctors, and son to the hospital on his observations. Not much. Also completely nowhere to flash the ultra cool Merc E-Class. At least eating the humble pie could be not that revolting, gut wrenching, as it was supposed to be. Also let's face it, Merc is 9 years old now, I don't want to buy subscription for Traffic Service anymore, it's still 40k miles but it is getting morally older. Not a problem for resale value now, but potential problem with depreciation.

And: Merc's (if it were a second car) annual service £300, tax £220, petrol easy £50-70 a month, insurance £250. That's easily £1370-1490 a year, plus small things like a coupla' tyres for £150... A £1520-1640 which can be saved in my pocket every year!

There will still be Deus ex machina solution (Dipping into my pension). However if I sell the Merc, it will be easier. The gap would stand at £48k, not £60k. I can only take £33k out of my pension plan, far from the full 25% tax-free lump sum.

You asked me why oh why do I need my credit rating???
With my credit rating at Fair, having no defaults, drastically reducing my total credit utilisation, I would soon see the rating going into Good, unlocking a few 0% deals, or even a consolidation loan (that would raise it even higher as long-term debt doesn't reduce it, like credit card debt does). I'll deal with £15k quite quickly, maybe a coupla' years. This will be my signal to attack the mortgage with whatever force I have.

Without credit rating it would be uphill battle with full interest accruing, lots of money down the toilet.

Also if I'll still formally have debts, it will be easier to explain to my wife why NO, we can't go on holiday yet, can't go down the pub to have a £90 family mean every week, can't start wasting money left, right and centre. Forgive me, but I'm not gonna tell her I only have £15k debt left. For her it'll still be £40k. (This way I can deal with it in a better way).

I will also work on improving my work position. Company paid Courses, maybe 2-3 certificates, AND using opportunity to study expensive products without expensive courses, all by myself -- the very best. Time to promote my career. Any pay raises may bring my ability to repay debts higher.

Still not sure how much debt to leave to deal with by normal means. But if I sell the Merc, I'll be on my way out. (Yes, out of this "persistent debt" crap you're trying to get me scared of. Even Martin Lewis said to not be afraid of letters or allow yourself to be bullied into higher payments.)

4 months left until my 55. And then, pounce I will.

Just need to decide how much debt to leave unpaid by Deus ex Machina. 5k? 10k? 15k? what do you think? My current pension value licks £220k.

Greetings

katsu

For how much to leave in your pension, is the way to approach that to look at the income you want from it? 

I would have thought you should leave as much as possible as you'll be below £200k once you draw some of it to clear these debts, right? 

DebtSurfer

katsu said:

For how much to leave in your pension, is the way to approach that to look at the income you want from it? 

I would have thought you should leave as much as possible as you'll be below £200k once you draw some of it to clear these debts, right? 

Yes, after I draw it down, it will be around £180-190k for now, plus my current work pension pot already stands at £5k+.

But what I should remind, is I'm not retiring right now.
And my pension is well invested with a decent annual return.

I am still full or energy, I intend to work until I am 67 at least (health permitting), and each of these years will not only be accumulating more pension contributions, but also see growth from the pension investments. My last year -- the worst performance was still about 7% annual, "thanks" to our Gov't involvement in things they should leave well alone, but generally my plan is quite good on returns... 

I do watch pension pot projections in my PensionBee app and do calculations. With £25k a year draw-down expected starting at 67, even with the current one-off chip in the value, I'll be well provided for in my 80's.

• If I'm lucky and I get a better salary, contributions will improve. Even if not, 
• Once I'm card-debt free, I'll start whacking my mortgage with a baseball bat.
• Once I'm mortgage free, I'll start jacking up my pension contributions and savings.
• All that instead of spending hundreds on interest rather than pension contributions...

£25k a year income seems like not much, but I won't need to pay off mortgage (I hope!), buy cars from new, or drive much. Bills around £600 a month, groceries around £800 a month, still leaves £700 disposable income for me and the wife.

I'll see how quickly I'll whack the debt in reality after the "lump sum help". Intending to beat it with the baseball bat, tooth and claw.

If I were to choose the banal way, like 6-8 years long DMP, would get out of it at 61-63, with a beaten credit score, completely exhausted, potentially ready to vomit from the copious amounts of humble pie eaten during these years... probably without a wife and with a kid who hates his dad for being so poor. Having paid lots in interest on my debts. Ineligible for best mortgage deals, cheap loans, 0%, sadly dragging the disgusting DMP and burning my money in endless interest charges.

DebtSurfer

And so...
If you have ideas how to best benefit from the Merc sale...
Private sale / Motorway / Cazoo / Autotrader / Facebook Marketplace / Ebay?

You're welcome to speak!

DebtSurfer

Why do I absolutely need my credit rating?

(A special answer for people who think I need my credit rating preserved just to borrow, borrow, and borrow more.)

I didn't get into these debts because I was a gambler, a profligate, or can't resist to borrow. I never had any debts at all. My credit card was always paid in full and timely. No loans. The BMW I bought, I bought outright, just less than 2 years after coming here to live.

To get my son born, we had to pay £25000 to the fertility clinic. Wife's problems. In Nov 2014, my son was born. In Dec 2014 he got a diagnosis of an inborn condition. By then it meant 15 years of life max (thankfully now it might be 50 or even full term, who knows). My wife also lost her childhood friend to a stroke. She got royally depressed. And then in January 2015 I lost my lucrative London job (company got out of business and fired most of us without any notice and with no severance) and plus I had to stay home to care about the baby and her. By the time I was ready to get back to work, job landscape changed + I had a year's gap. I spent 3 years without work. My safety net made of credit cards was seriously strained but held, I preserved my house and my flashy car (which kept me sane during this period).

Later I experienced 2 more jobless periods b/c job landscape changed once more. To counter that, I started a parallel career. Worked like crazy to get debts eliminated. Got redundant due to reorganisation. It wasn't easy to find new jobs as I was in my 50's already.
- - -

This is why I absolutely need my credit rating.

• Good credit history opens ways to things that save you money. Phone contracts, interest reducing products, buying car on a cheap bank loan rather than dealer's 10%, 15% and more... (on used cars it's really high from dealers!).
  
• Good credit history enables Consolidation loans, 0% balance transfer and purchase credit cards to deal away with interest -- instead of begging providers on Money Worries lines to reduce or freeze my interest, losing my good name, credit history, leaving myself under their decisions...
• Good credit history reduces your insurance premiums.
• Good credit history gives mortgage freedoms, you can apply anywhere, not just to your current provider.
• I have enough determination and willpower not to spend extra. For example, I have successfully taken, and dealt with, a consolidation loan of £25,000, in 4.5 years, saving huge amount of interest.
• But I need facilities it can give.
  

I don't want to buy a lot of unnecessary stuff.
Granted, my wife has done that. But I found ways to curb this.

Once I'm out of debt, she'll get a fixed amount on her bank account and that's hers, she can save it or spend, as she wants, invest, accumulate, "spaff it up the wall"(c) Johnson. No more credit card. And specific destruction of Klarna and other BNPL provider ways.

So God permits, if I don't lose job for extended periods again, the "Deus ex machina" solution (part pension pot, part normal debt repayment once it becomes bearable), can be my way to freedom, with minimum overall costs, with minimum reputation and credit rating damage, with still lots of money in the pot to finance my retirement when the time comes to enjoy my own time and not work anymore.