How to take the first step?

AnywayForward

I will try my best to be brief. 

I have no idea where to begin on lowering my debt. To give context I haven't been the best at not spending above my means which now has caught up to me.

In 2021 I had to get a new car after my old one got it's catalytic converter stolen and as my job requires one took the quickest option with not as much research as I should've done and got a car on finance for 258 per month this-- up until now-- was doable. The car at the time was 3 years old.

In 2022 I no longer wanted to live with my ex and decided to rent by myself in our flat this meant I need to drum up approx 2,500 in a deposit and first month which I could not do and therefore decided to get a loan with my bank of 5k which I then used half for a holiday (again poor financial decisions)

At the end of 2022 now living on my own my bills skyrocketed (which I knew would happen) by way more then I could have imagined going from 1100 all utilities and expenses accounted for to about 3k per month which was passable when I was getting a good amount of commission on top of my wages.

However, Jan 2023 I didn't get any commission and my basic was 1,100 with the addition of now having to pay for everything it was the first time I had entered my overdraft.

Feb 2023 I stupidly went on holiday with people who I call spontaneous-on the fly-lets see how the night goes- spenders (they have the money to do that I do not) and with the addition of universal credit taking into account the big payout i got in December and the abysmal turnout in January wages it was a mess.

Slowly through the year I have been falling deeper into my overdraft to the point where I am only out of it for about 10 mins before all the necessary bills enter the room. In this time I took out another loan as I was at a point where my overdraft and universal credit didn't cut it now taking my debt of car, and two loans to approx 600 pm.

Baring in mind I have utilities to pay for, council tax, childcare, petrol, car insurance, road tax, groceries, phone bill, internet, tv license etc.

There is one highlight I managed to buy a house at the end of 2023 on 100% mortgage with my partner and in hindsight if I was in this position now with rent on top I would be even more worse off then possible.

In buying a house my overall expenditure has come down to 1,200 not including childcare, my car and my debts. But that does mean my universal credit is as low as 55 per month as I have taken on a new job where my basic salary is 1500.

However, the damage is done and not even my overdraft can save me. What can I do? I've stopped all spending outside of necessities and there simply seems to be no other means to get rid of this growing debt and it's naturally effecting my mental health.

I am 26 and I am at the point of considering bankruptcy. 

EssexHebridean

First step is done - you have acknowledged there is an issue and you need help. Well done. 

Second step is to put together your SOA - statement of Affairs. There is a link in my signature to the calculator we suggest you use. Complete it fully, openly and honestly - and remember it needs to reflect your current situation, NOT what you think you should be doing. If you are then comfortable to do so, use the “format for MSE” function, and copy and paste into this thread. We can then take a look and see if we can make any suggestions (we usually can!) 

It sounds as though you do not currently have sufficient income to pay your priority bills and the debts - is this the case? If so, you need to cancel payments to any unsecured debts - credit cards, loans etc. if it turns out bankruptcy is an option for you, then there is no benefit to paying any more to the debts, and if it is something like a Debt Management Plan that suits your position better, then you’ll be wanting the debts to default anyway - stopping payments is the first step to that. 

Above all - take a breath - it’s all fixable, one way or another. 

sourcrates

If you own a home the last thing on your mind should be bankruptcy, as the house would be a major asset, but it might swing on how much equity there was in it.

I would look at more informal solutions first, a statement of affairs will give us more of an idea of your overall situation, click the link in my signature, post it on this thread.

AnywayForward

Thank you for the quick response. I have done the SOA to the best of my abilities but wanted to mention the debt is solely in my name and not both me and my partner and I do really want to try and resolve it by myself as much as I can as he's already paid 2k towards it which is another debt I owe in of itself.

At the moment the debts are taking money that needs to go to necessities. How would I go about cancelling those debts. I already know my credit score will take a hit and prepared for that.

[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......... 1

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

Monthly Income Details[/b]

Monthly income after tax................ 1506

Partners monthly income after tax....... 2400

Benefits................................ 100

Other income............................ 162[b]

Total monthly income.................... 4168[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 1741

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

Rent.................................... 1471.11

Management charge (leasehold property).. 0

Council tax............................. 158

Electricity............................. 150

Gas..................................... 0

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

Water rates............................. 56

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

Mobile phone............................ 26

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

Satellite/Cable TV...................... 0

Internet Services....................... 26

Groceries etc. ......................... 200

Clothing................................ 0

Petrol/diesel........................... 200

Road tax................................ 48

Car Insurance........................... 74

Car maintenance (including MOT)......... 22

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

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

Childcare/nursery....................... 180

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

Medical (prescriptions, dentist etc).... 0

Pet insurance/vet bills................. 0

Buildings insurance..................... 0

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

Life assurance ......................... 30

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

Presents (birthday, christmas etc)...... 0

Haircuts................................ 0

Entertainment........................... 30

Holiday................................. 150

Emergency fund.......................... 0

(Unnamed monthly expense)............... 0[b]

Total monthly expenses.................. 4595.11[/b]

[b]

Assets[/b]

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

House value (Gross)..................... 0

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

Car(s).................................. 0

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

Total Assets............................ 0[/b]

[b]

Secured & HP Debts[/b]

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

Mortgage...................... 275000...(1741).....0[b]

Total secured & HP debts...... 275000....-.........-   [/b]

[b]Unsecured Debts[/b]

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

Santander......................3961......116.......0

Plata finance..................7979......150.......0

Hyandai........................7992......258.......0[b]

Total unsecured debts..........19932.....524.......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 4,168

Expenses (including HP & secured debts). 4,595.11

Available for debt repayments........... -427.11

Monthly UNsecured debt repayments....... 524[b]

Amount short for making debt repayments. -951.11[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 0

Total HP & Secured debt................. -275,000

Total Unsecured debt.................... -19,932[b]

Net Assets.............................. -294,932[/b]

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

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

RAS

You need building insurance, urgently. Just look at all those poor souls whose roofs are missing or leaking after the last month's weather and £240ish  a year is a bargain.

Exactly what s the car deal, as this may well be secured debt. If not, you may need to sell it.

And we need APRs to better advise you.

EssexHebridean

Before we go any further - are you in shared ownership with rent and mortgage payment that are identical, or have you competed the wrong figure somewhere along the line? It makes a big difference to whether your household budget gives you a surplus, or a really big deficit. 

It would also be helpful to see where you are paying the whole of a particular bill, and where you are contributing to a greater amount. For example you give TV license at £13 (it’s actually £13.25 currently, and due to increase IIRC) and groceries and £200 - which might be the full sum , or it could be a proportion of your monthly spend. 

It might be a good plan to go back through the SOA and make sure that the figures are accurate - you should be able to edit the original version on the lemonfool site then repost it. 

Floss

EssexHebridean said:

Before we go any further - are you in shared ownership with rent and mortgage payment that are identical,
 

That would account for no buildings insurance.

sourcrates

£3000+ per month in mortgage and rent???? surely not?

AnywayForward

Thank you everyone for the ongoing help. I wasn't sure how to individually answer each comment so will answer them all underneath.

RAS: I do have building insurance as of today as I was told that because the previous owners had paid for this year it would still cover us as the new owners. I will update the SOA again.

EssexHebridean: I am not in shared ownership, I did the 100% mortgage so my mortgage is 275000 we pay 1741.11 per month towards that.

Here is the SOA with context

[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......... 1

Number of cars owned.................... 2[b] (one is my partners which he owns outright)

Monthly Income Details[/b]

Monthly income after tax................ 1506

Partners monthly income after tax....... 2400 (he gets paid weekly)

Benefits................................ 55 (this was last months pay and the lowest I have ever received)

Other income............................ 162[b]

Total monthly income.................... 4123[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 1741 (we split it 50/50)

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

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

Management charge (leasehold property).. 0

Council tax............................. 158 (split 50/50)

Electricity............................. 150 (this is both gas and electric, we are on a fixed tarrif, split 50/50)

Gas..................................... 0

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

Water rates............................. 56

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

Mobile phone............................ 26 (just my phone)

TV Licence.............................. 40 (per quarter and I pay for this)

Satellite/Cable TV...................... 0

Internet Services....................... 22

Groceries etc. ......................... 200 (this is per month split 50/50)

Clothing................................ 0

Petrol/diesel........................... 100 (This is just for my car)

Road tax................................ 48 (This is just for my car)

Car Insurance........................... 74 (This is just for my car)

Car maintenance (including MOT)......... 0

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

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

Childcare/nursery....................... 180 (I pay for this solely)

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

Medical (prescriptions, dentist etc).... 0

Pet insurance/vet bills................. 0

Buildings insurance..................... 32 

Contents insurance...................... 57 (At the moment my content, building and car insurance come under multicover and I pay for this)

Life assurance ......................... 31 (This is just for me)

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

Presents (birthday, christmas etc)...... 0

Haircuts................................ 0

Entertainment........................... 22

Holiday................................. 150 (I have two more payments to make of this amount, I apy for this solely)

Emergency fund.......................... 0[b]

Total monthly expenses.................. 3087[/b]

[b]

Assets[/b]

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

House value (Gross)..................... 275000 (this is how much we paid for it, we have only been payign for the mortgage since NOV 23)

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

Car(s).................................. 7000 (Valued by we buy any car and how much I would get should I part exchange)

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

Total Assets............................ 282000[/b]

[b]

Secured & HP Debts[/b]

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

Mortgage...................... 275000...(1741).....0[b]

Total secured & HP debts...... 275000....-.........-   [/b]

[b]Unsecured Debts[/b]

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

Santander......................3961......116.......0

Plata finance..................7979......150.......0

Hyandai........................7992......258.......0[b]

Total unsecured debts..........19932.....524.......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 4,123

Expenses (including HP & secured debts). 3,087

Available for debt repayments........... 1,036

Monthly UNsecured debt repayments....... 524[b]

Amount left after debt repayments....... 512[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 282000

Total HP & Secured debt................. -275,000

Total Unsecured debt.................... -19,932[b]

Net Assets.............................. -12,932[/b]

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

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

EssexHebridean

There we go, those figures look a bit better don’t they! 

Just to confirm, you do have buildings insurance in your/your OH’s name for the new house, yes? To clarify - any policy taken by a previous owner will usually have lapsed when they sold. You should have had buildings cover in place from the date you exchanged contracts assuming that this was a freehold house purchase - your mortgage Co would usually insist on that too.

Easy win - stop paying quarterly for the TV license and switch it to monthly instead. Makes budgeting easier and also I believe they charge a premium for quarterly payments - that money is better in your pocket than theirs! Similarly, car tax paid monthly attracts a premium - set aside money from your surplus to pay a year upfront then add 1/12th of the cost to your car maintenance savings each month. And that brings us to the next thing - your car doesn’t maintain itself I’m guessing? 😉 Unless the Hyundai finance is one of those deals that pays all the maintenance costs, take your annual costs for servicing, MOT test and add a bit for other things like tyres, wiper blades, screen wash, the occasional new bulb etc. divide by 12, add 10% and that is the amount to set aside monthly. 

Other things: 
Does the amount for the holiday include any spending money you’re going to need?  If not, factor that in to the SOA
You should factor in something for clothes, even if just a nominal £5 a month “socks and pants money” 
you need to be saving something into an emergency fund - it is that which means when the fridge breaks you don’t need to rely on credit to replace it. Aim for around £1000 as a starting point - but eventually you should be looking at a pot which will cover 3 months expenses should the worst happen. 

Energy bills - that seems reasonable enough but do make sure that you check that a) smart meters are sending readings and b) that those readings are accurate. It’s also worth keeping an eye to make sure that your DD is looking about right - although this is so easy in a new home until you’ve been there a year, I know. 

Groceries - £200 a month is pretty good for this day and age - just be sure that IS all you spend. You’re not budgeting elsewhere for household items or toiletries, so those need to be included, and make sure that you include any top up shops as well as your usual weekly shop. 

TheAble

That situation with the buildings insurance sounds very odd. Insurance contracts are typically dependent on the individual taking them out and it would be very unusual that they be transferred in this way. I'd recommend you be very sure of your ground here with what is such an important protection.