Resolving debt to have second child

PapaFoxtrot18

My wife and I got married and had our first child during the Covid 19 pandemic. My wife only got maternity allowance and I initially reduced by working days to 3 days and after a couple of months went to 4 days a week. Over this whole time I got into a debt spiral and wasn't talking about it to my wife or anyone really. This all came to ahead within the last year. I had a total amount of unsecured debt of £60k.
I work in healthcare and managed to negotiate a raise and went back to full time and I've consolidated and paid off debts down to a current debt balance of £48k. I'm paying off around £1.5k a month and the full balance would be paid off in 2.7 years. Paying off debts, plus bills and rainy day savings leaves me about £600 excess.
My wife and I would really like to have a second child, does anyone have any good ideas about how I could consolidate debt further and make savings in order to afford a second child?

Brie

You'll be better off with this on the debt board so the experts can help you out.  Obviously having another child is a family goal but in some ways the goal doesn't matter if it's the debt that needs to be addressed first.  Others will have a goal of a house or a car or a holiday.  

It's great that you are facing up to this and I hope you are including your wife in getting things sorted.  But do have a look on the sticky on the debt board, fill in a statement of accounts to clarify exactly what money you have going in and out.  Post it there and the lovely people will come along with helpful advice.

Mine is always to think about why you're putting money into a rainy day fund.  Others think this is essential but I take the view that it's raining now so use that ££ to tidy things up and get back into the black.  Once you've done that you can set aside your emergency funds.  

I'll ask for this to be moved....

MSE_ForumTeam5

Moved as suggested

RAS

As Brie said, you would get better tailored advice if you completed a Statement of Affairs (SOA) and gave us a little advice about your circumstances.

Do you rent or have a mortgage? Commute by public transport or own a car? What sort of APRs are you paying? Is your wife now working as well? Do you have local family support, or need to be able to travel overseas if there is an emergency with family there?

Depending on these, you may need a rainy day fund to cover urgent house repairs, or a rental deposit, and replacing at least one domestic item per year. You certainly need a budgeting fund to enable you to fund predictable annual costs like holidays, insurance, family events and Christmas/your festivals.

EssexHebridean

Firstly, congratulations on having the common sense to think about the financial implications of your wish for another child - it's amazing how many people don't!  

I'm afraid I'm firmly in the camp that a basic emergency fund is needed by everyone - allowing that you don't say what your home circumstances are, then I'll list what my suggested minimum amounts would be, others may have differing views though:
Renting, furnished, no car - £250
Renting Furnished, car, OR renting unfurnished, no car - £500
Renting unfurnished, car, OR homeowner, no car - £1000
Homeowner with car - £1500
This money should be considered as for use ONLY in an emergency, and if dipped in to, should be topped up as soon as possible.  In an ideal world once those minimums are reached you would continue to save for a full on "Rainy Day fund" - so the next goal for that being 3 months savings to cover all outgoings in case of loss of job for example; 

I agree with RAS that an SOA would be a good plan - you will find the link to the calculator we suggest using in my signature below. Hopefully you already have a full household budget that you and your wife work to currently. It sounds like you have addressed the cause of debt simply by increasing earnings, and indeed, that it was the drop in income that caused the issue. £60k is quite a bit to rack up just from that over the timescale you are talking about though, so do make sure that there weren't other factors that perhaps haven't yet been addressed - overspending in certain areas, trying to live a champagne lifestyle on a lemonade budget or similar. 

In terms of how to tackle to the debt best going forwards, the SOA will help to inform suggestions there, but consolidating won't reduce the debt really, to do that you need to reduce the interest payable OR let everything default and then try for full and final offers to clear the debt in chunks. that will have a knock on effect on your credit file for longer though, assuming that currently you have been keeping up with all payments. My guess is that you might be worth looking at shifting some debt to 0% cards if that isn't something you are already doing - again, the SOA will provide a clearer picture. 

As a rule we advise against consolidation for the simple reason that it can lull people into a false sense of security - because their monthly payments fall, they perceive that things are less of an issue, whereas in fact because they are paying off LESS, for LONGER, in fact, the overall cost of their debt has increased. In your case because you have already tackled the shortfall in income, and have a solid plan for paying things off, you may well be a good (rare!) candidate for consolidation to work for. Do remember though, even once the debt has gone, living to a budget and putting money into savings needs to be a way of life, not something you then give up on. 

stu12345_2

what about renting unfurnished, old car?

EssexHebridean

stu12345_2 said:

what about renting unfurnished, old car?

Thank you for picking up on the typo Stu - that's what happens when you try to copy and past bits of text to save time! Now edited! 

enthusiasticsaver

I would do an soa as a starting point but if you got seriously in debt after having your first child the chances are that debt will amass on a second too unless you sort out your budget.  Consolidating debt does not reduce it by the way.  It just shuffles it around.  You both need to communicate about your finances before embarking on a second pregnancy.  If the debt is due to be repaid in less than 3 years is it feasible to wait or would the age gap be too big then? 

Start with an soa and plan to build up some savings to cover maternity leave.  Will you be able to afford childcare if you have a second child? 

EssexHebridean

I read it that the debt was largely due to the combination of the maternity leave combined with the OP going part time at the same point which proved to be unsustainable.  Completely agree with the budget needing an overhaul regardless, and also your second paragraph cuts to the chase perfectly. 

CreditCardJunkie

Hi and welcome! Well done on the debt busting so far! As someone who cleared debt during statutory maternity pay, my advice would be to do a SOA as advised above. Work out what you can and can't afford with your wife being on maternity pay and cut back accordingly. For me this meant getting rid of a car on finance and getting a runaround for a year. I also picked up a side hustle & done surveys to bring in extra to pay off debts.

You'll find with the second one they might not cost as much as the first. We kept absolutely everything from our first (girl) when we found out our second was a boy I sold all the clothes on vinted and got enough to kit the boy out for the first year. It was amazing already having all the big things like pram, cot, next to me, car seat etc! You're also a bit wiser the second time and realise they don't need expensive toys when they're happy playing with the remote etc 😂

Good luck!