Advice appreciated on the best approach for managing my credit card and overdraft debt

EssexHebridean

notation said:

Please find below the completed statement of affairs (SOA)...

I can see there's a problem with those unsecured debts - overdraft and credit cards

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

Household Information[/b]
Number of adults in household........... 1
Number of children in household......... 0
Number of cars owned.................... 0[b]

Monthly Income Details[/b]
Monthly income after tax................ 2236
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0[b]
Total monthly income.................... 2236[/b][b]

Monthly Expense Details[/b]
Mortgage................................ 555 
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 50
Council tax............................. 150 This seems high-ish for a single person in a house of the value you're stating - do you definitely get the single person discount? 
Electricity............................. 40 On the flip side - check these are accurate as they possibly seem a little low. 
Gas..................................... 30
Oil..................................... 0
Water rates............................. 30 If this is metered then you either have a leak, are able to cut down substantially, or aren't getting your meter read when you should! Check the meter yourself and make sure it looks right for your bill, then maybe see if your water company has a quiz you can take a about water use - quite useful for making you think about how you use it! 
Telephone (land line)................... 0
Mobile phone............................ 12
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 40 This is on the high side - when the contract is up have a look and see if you can do better. 
Groceries etc. ......................... 650 Already touched on by others I know, but this is at least three times higher than it really could be - and with some proper effort you could get it down even more. Can you work out what is making this so high? Do you buy a lot of pore-prepared stuff (ie ready chopped veggies, grated cheese etc) as paying for someone else to do a job that would only take you seconds is a god way of spending more than you need. Have you tried the downshift challenge where you switch out branded items for shop's own label, and own label for "value" ranges? Also - a meal plan, a shopping list and sticking to that list can really help here.
Clothing................................ 20
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 155
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 11
Pet insurance/vet bills................. 0
Buildings insurance..................... 0 Before you do anything else, you need to sort this and the contents insurance out. In the rand scheme of things it won't cost you much, and should the worst happen you will very much feel that the small amount it WILL cost was worth every penny. You may even be in breach of your mortgage conditions, at the moment. 
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0 You never buy anything for anyone? Not family, close friends, secret santa at work? 
Haircuts................................ 10
Entertainment........................... 120
Holiday................................. 0 You never go anywhere at all - not weekends visiting family or friends, or a day out somewhere that wouldn't be covered by your usual entertainment spend? 
Emergency fund.......................... 0 Yes - you need to start putting something here for sure. [b]
Total monthly expenses.................. 1873[/b]
[b]

Assets[/b]
Cash.................................... 100
House value (Gross)..................... 300000
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0[b]
Total Assets............................ 300100[/b]
[b]

Secured & HP Debts[/b]
Description....................Debt......Monthly...APR
Mortgage...................... 86055....(555)......3.64[b]
Total secured & HP debts...... 86055.....-.........-   [/b]

[b]Unsecured Debts[/b]
Description....................Debt......Monthly...APR
Barclaycard....................2190......80.5......22.43
Natwest Mastercard.............560.......11.42.....19.96
Sainsburys bank card...........5450......125.......0
Natwest a/c overdraft..........4000......115.......39.49[b]
Total unsecured debts..........12200.....331.92....-  [/b]

[b]
Monthly Budget Summary[/b]
Total monthly income.................... 2,236
Expenses (including HP & secured debts). 1,873
Available for debt repayments........... 363
Monthly UNsecured debt repayments....... 331.92[b]
Amount left after debt repayments....... 31.08[/b]

[b]Personal Balance Sheet Summary[/b]
Total assets (things you own)........... 300,100
Total HP & Secured debt................. -86,055
Total Unsecured debt.................... -12,200[b]
Net Assets.............................. 201,845[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.
Reproduced on Moneysavingexpert with permission, using Firefox browser.[/i][/font]

OK - let's take a look. Comments in bold above...

As a starting point that is essentially good,  you are pretty much breaking even and while there are some things that need to be added - insurances notably, and probably presents, plus emergency fund - there is so much slack in that groceries budget at the moment that you can cover all of the above and still have a good extra chunk to throw at first the overdraft and then the cards. the key question though is whether that actually IS what you are spending - but having everything noted now means you will be able to answer that question for yourself soon enough! 

If it were me, I'd be taking steps in this order:
- Sort out buildings and contents insurance - that is the first thing without a shadow of a doubt, just stop what you are doing and tackle it. There are some good guides on insurances on the main MSE site, but essentially go via a comparison site, make sure the cover you are selecting is sufficient, and go with a provider who had a decent defaqto rating.  
- Allocate a small amount (maybe £20 a month?) to presents - less if you are certain it is realistic - and make sure that along with all your other "monthly budgeted" amounts are set aside into savings. 
- Start a new savings account for your emergency fund - and a standing order to it for £50 a month from a couple of days after your next pay date. 
- As long as you are not still using any of the credit cards then you could set the monthly payments on those to a little above the current minimums. This means that it makes budgeting easier as it is a known amount dropping off each month, but also it makes a bit more impact on what is being cleared off month on month - debt clearance by stealth methods, if you like! You must ONLY do this on cards you are not using though, and do keep an eye for any letters telling you that the minimum is increasing for any reason - not likely but can happen. 
- Get that food spend down to a sensible level! You don't need to go all dry bread and water on us - aiming for a £250 a month spend as a starting point is still generous for a single person but would free up £400 a month to get paid elsewhere. Over time you can reduce further, but take things one step at a time otherwise it's all going to feel very hard work. 
- once the above is done, for me the next focus needs to be the overdraft - and you need to throw every spare penny at it. Overdrafts are often described as "dangerous debt" because they can be called in at any time - they are also very expensive - just look at that monthly interest! Personally I'd be looking at cutting back on entertainment and clothing spends for a few months to get a bit extra to throw there. 

Make diary notes of when contracts are ending, insurances are due, and card promotional deals end. if you can get either of the interest bearing cards over to 0% deals then fantastic - both would be even better, so that's a thing to look at for sure. A year planner might be a good way of getting thigs clearly set out so you know what is coming up to be looked at each month. 

enthusiasticsaver

notation said:

Please find below the completed statement of affairs (SOA)...

I can see there's a problem with those unsecured debts - overdraft and credit cards

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

Household Information[/b]
Number of adults in household........... 1
Number of children in household......... 0
Number of cars owned.................... 0[b]

Monthly Income Details[/b]
Monthly income after tax................ 2236
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0[b]
Total monthly income.................... 2236[/b][b]

Monthly Expense Details[/b]
Mortgage................................ 555
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 50
Council tax............................. 150
Electricity............................. 40
Gas..................................... 30
Oil..................................... 0
Water rates............................. 30
Telephone (land line)................... 0
Mobile phone............................ 12
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 40
Groceries etc. ......................... 650
Clothing................................ 20
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 155
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 11
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 10
Entertainment........................... 120
Holiday................................. 0
Emergency fund.......................... 0[b]
Total monthly expenses.................. 1873[/b]
[b]

Assets[/b]
Cash.................................... 100
House value (Gross)..................... 300000
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0[b]
Total Assets............................ 300100[/b]
[b]

Secured & HP Debts[/b]
Description....................Debt......Monthly...APR
Mortgage...................... 86055....(555)......3.64[b]
Total secured & HP debts...... 86055.....-.........-   [/b]

[b]Unsecured Debts[/b]
Description....................Debt......Monthly...APR
Barclaycard....................2190......80.5......22.43
Natwest Mastercard.............560.......11.42.....19.96
Sainsburys bank card...........5450......125.......0
Natwest a/c overdraft..........4000......115.......39.49[b]
Total unsecured debts..........12200.....331.92....-  [/b]

[b]
Monthly Budget Summary[/b]
Total monthly income.................... 2,236
Expenses (including HP & secured debts). 1,873
Available for debt repayments........... 363
Monthly UNsecured debt repayments....... 331.92[b]
Amount left after debt repayments....... 31.08[/b]

[b]Personal Balance Sheet Summary[/b]
Total assets (things you own)........... 300,100
Total HP & Secured debt................. -86,055
Total Unsecured debt.................... -12,200[b]
Net Assets.............................. 201,845[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.
Reproduced on Moneysavingexpert with permission, using Firefox browser.[/i][/font]

I haven't read all the comments on the thread but I am sure some of what I suggest will have been repeated by others. 

The first thing I noticed was you have a surplus in spite of a way above average grocery spend for one person so I would suggest that a DMP is not for you. Do you cook or are you buying ready made meals?  For health and cost I would learn to cook and cook a few meals at a time and freeze one or two.  Things like bolognese sauce, casseroles, lasagne, shepherds pie, soups etc all freeze well.  We spend less than £300 usually for 2 of us so I reckon you could halve that grocery spend unless you are buying alcohol or  cigarettes which are the usual suspects in high grocery bills.  If you have a dietary restriction that could also account for it as gluten free or lactose free products can all be more expensive.  Do you use Lidls or Aldis as they are a lot cheaper? 

The other gaps in your soa are presents, holiday (unless you never go away even for a weekend), buildings and contents insurance (or is that included in your mortgage?)  and emergency savings which you need as you have a house.  Do you not watch live TV as there is no TV licence fee there either? Emergency savings is needed as trying to reduce debt and then have a washing machine break down and have no money to replace or mend it would mean putting it on a card.  You have to move away from using credit to sort out the debt.  

The critical thing for me would be that high expensive overdraft.  Can you get a 0% money transfer card to move any of that?  As you reduce it each month lower the limit so you are not tempted to keep spending on it.  Personally I would move groceries money and entertainment money and travel to a different account and not use that main account for anything other than paying direct debits and keep reducing the limit by £100 a month say until you are in a position to get a 0% card to clear it completely.  

I would also stick £50 into savings a month for emergencies. 

So for month 1

I would address the groceries spend and sort out basic buildings and contents insurance (you don't need all the add ons) and open up a basic bank account with no overdraft for your monthly spends and maybe stick £600 in there to cover groceries and entertainment and travel. That is easily doable for a single person. Open up an emergency savings account if you do not already have a savings account and stick your £100 cash in there and put in £50 a month.  

Work out how much your direct debits come to (it looks around £900 there) and the minimums on the cards or slightly higher so I would pay £85 to the Barclaycard, £15 to Nat West and £130 to Sainsburys so £230 in total and whatever the balance is in your bank account reduce the overdraft limit to slightly above that after the direct debits have come out and gradually reduce each month.  The overdraft is the critical debt as that can be withdrawn at any time and it is your most expensive.  I would do a soft credit search and see if you can get any 0% deals for money transfer or balance transfer cards for the  Barclaycard and Nat West Card.  

I would try and aim for around £600 a month towards the debt in the  hope of getting rid of it within 2 years. That should be  doable on your income. 

So say as a rough breakdown
£950 for direct debits and bills depending on how much insurance is. 
£635 towards the debt. This would be £230 towards the cards and £400 to the overdraft although interest would reduce that.  You should be able to reduce the limit by £250 each month then so that would mean it would be gone by middle of 2025. 
£600 on living expenses as a start to cover groceries, entertainment, clothes and travel. 
£50 for emergency savings 

This is eminently doable on your income. 

stymied

In terms of increasing your income, do you have anything to sell, could you take on an extra job for a few months, do you have a spare room to let to a lodger or could you do occasional Airbnb while you visit a friend? Anything extra would be a great boost to the start of your DFW journey!

notation

onomatopoeia99 said:

Are you use you have no buildings insurance?  Mortgage lenders tend to get upset with borrowers that don't insure the asset that their loan is secured on in my experience.

I'm curious at what you're spending all that money on for groceries, but it really is just curiosity, you've acknowledged it needs to be significantly reduced already.

Thanks, the mortgage is a Natwest one - I'm not 100% certain re the buildings insurance side of things.  All I can say is I'm not paying a monthly outgoing for buildings insurance.

fatbelly

fatbelly said:

It sounds like you are in a muddle and likely a debt management plan is going to be needed

If you can provide a statement of affairs we would be able to make sensible suggestions

https://www.lemonfool.co.uk/financecalculators/soa.php

Shows the value of an soa, because you don't need a dmp. But I was right about the muddle.

You can meet your contractual payments and overpay them. You just need to analyse your groceries spend as that is the figure we would expect for a family of 4!

There are a number of strategies to attack an overdraft. Use as many as you can

https://www.moneysavingexpert.com/banking/cut-overdraft-costs/

kimwp

To understand why you are spending so much on food, have a look at:
- How much you have in your cupboards - it's super easy to keep buying more and have lots of duplicates. To address this, a meal plan to use what you have at home and a shopping list made after checking what you already have helps.
- what you throw away - you shouldn't really be throwing anything away that came into your house as edible food.
- what brands you buy. If there are cheaper brands, try those.
- what the state of the food is (pre-made, pre-prepped) and if buying it unprocessed is cheaper

EssexHebridean

Yes, a fridge, freezer and cupboard audit can be an incredibly useful tool. You start by making a list of everything you have, then work toward deciding what meals you can make from those things. So if you have a pack of sausages for example, potatoes, eggs, mushrooms, onions, pasta, tinned tomatoes, cheese and a bag of frozen peas - you have sausage, mash & peas with onion gravy for one meal, sausage and mushroom pasta for another, Egg, chips and peas for another, mushroom and cheese omelette for another. that's four meals just from those simple things and you still have a couple of eggs, some cooked sausages (which you can freeze) and some veg to roll forwards for another week as well. Learn what you can freeze, and what doesn't freeze well - then also learn how you can make the things that don't freeze well "as it" freezable - mushrooms for example don't freeze raw, but if you cook them first, voila!

When I meal plan I first go through the fridge in particular and note down anything that needs using up - those things then immediately get factored into a meal for the following few days. Taking food waste down to practically zero is probably the single most effective most people can do both environmentally and for the good of your pocket! 

notation

Many thanks EssexHebridean

I will try to answer all your points.

“This seems high-ish for a single person in a house of the value you're stating - do you definitely get the single person discount?”

Unfortunately that is my Council tax bill after single person discount.

“On the flip side - check these are accurate as they possibly seem a little low.”

Over the course of the year £70 is about right.

“If this is metered then you either have a leak, are able to cut down substantially, or aren't getting your meter read when you should! Check the meter yourself and make sure it looks right for your bill, then maybe see if your water company has a quiz you can take a about water use - quite useful for making you think about how you use it!”

I doubt there is a water leak so it’s either my consumption or perhaps a billing issue.

“Groceries etc. ......................... 650 Already touched on by others I know, but this is at least three times higher than it really could be - and with some proper effort you could get it down even more. Can you work out what is making this so high? Do you buy a lot of pore-prepared stuff (ie ready chopped veggies, grated cheese etc) as paying for someone else to do a job that would only take you seconds is a god way of spending more than you need. Have you tried the downshift challenge where you switch out branded items for shop's own label, and own label for "value" ranges? Also - a meal plan, a shopping list and sticking to that list can really help here.”

I accept what everyone is saying that the groceries bill is too high and needs serious cuts.  

“Before you do anything else, you need to sort this and the contents insurance out. In the rand scheme of things it won't cost you much, and should the worst happen you will very much feel that the small amount it WILL cost was worth every penny. You may even be in breach of your mortgage conditions, at the moment.”

My mortgage is with Natwest, I agreed another 5 year term mortgage with them in August 2022.  I don’t know if there is some kind of building insurance built in to the mortgage, but frankly I simply don’t know what the situation is with this.  I’m not paying a monthly payment for it that’s for sure.  I will take a look at this.

“Presents (birthday, christmas etc)...... 0 You never buy anything for anyone? Not family, close friends, secret santa at work?”

Approx £300 for presents.

“Holiday................................. 0 You never go anywhere at all - not weekends visiting family or friends, or a day out somewhere that wouldn't be covered by your usual entertainment spend?”

Approx £400 for holidays

On your other points …

1) I should focus on getting the Overdraft down.

2)  I should pay more than the minimum to gradually reduce the balance on the interest-bearing credit cards i.e. Barclaycard and Natwest

3)  Look at a 0% interest balance transfer card to pay down the interest-bearing cards.  According to MSE I am very likely to qualify for cards like this.  It would save me over £50 a month in interest payments for these 2 cards.

 

 

EssexHebridean

I would suggest that the next job is to sort the insurances, then you will have an accurate figure to add to the SOA for that, and you can now put in the figures for presents and holidays too which will give you a more accurate picture of your actual outgoings. I would also look further into trying to get some of the card balances onto 0% - it's great news that you are coming up with a god chance of acceptance! It may be worth seeing if you stand a decent chance of acceptance for a card that doesn't carry a transfer fee - there are usually a few about. they generally have shorter interest free periods but allowing that it seems that your file still looks fairly healthy, needing to get a new deal in 18 months or so might not be an issue.

Where you budget monthly for things that are actually paid out annually or infrequently, then you may find it easier to separate the money out into savings accounts linked to your current account. It means you can see at a glance what you have in each "pot" and avoids confusion. 

notation

Thanks Enthusiasticsaver


My groceries are too high and needs to be cut back on.

I do drink but I don’t smoke

Holidays approx. £400 pa

Presents approx. £300 pa

I don’t watch live TV so don’t have a license.


“The critical thing for me would be that high expensive overdraft.  Can you get a 0% money transfer card to move any of that?  As you reduce it each month lower the limit so you are not tempted to keep spending on it.  Personally I would move groceries money and entertainment money and travel to a different account and not use that main account for anything other than paying direct debits and keep reducing the limit by £100 a month say until you are in a position to get a 0% card to clear it completely.”

 
If I understand you correctly, look for a 0% interest balance transfer card to pay down the Natwest current account overdraft.  The O/D account then is mainly for paying direct debits and the O/D limit gets reduced month on month.  Another current account is opened up with a different bank I assume, and that becomes the account I pay general living expenses from.  I don’t think you can have 2 current accounts with the same bank, but I’m not sure?
Is this understanding correct?

“Open up an emergency savings account if you do not already have a savings account and stick your £100 cash in there and put in £50 a month.”

I agree

“Work out how much your direct debits come to (it looks around £900 there) and the minimums on the cards or slightly higher so I would pay £85 to the Barclaycard, £15 to Nat West and £130 to Sainsburys so £230 in total and whatever the balance is in your bank account reduce the overdraft limit to slightly above that after the direct debits have come out and gradually reduce each month.  The overdraft is the critical debt as that can be withdrawn at any time and it is your most expensive.  I would do a soft credit search and see if you can get any 0% deals for money transfer or balance transfer cards for the  Barclaycard and Nat West Card.”

Is there a difference between “money transfer”  “balance transfer” cards?

“I would try and aim for around £600 a month towards the debt in the  hope of getting rid of it within 2 years. That should be  doable on your income.”

Thanks for the detailed explanation!