Best Strategy for DMP start date

cheshbon

Hi, I have read a lot of the threads so far and believe I have the best idea for strategy. Between my OH and myself we have £109k unsecured debt (11 credit cards, 3 overdrafts, 2 personal loans and some smaller credit lines from retailers) Yes its a massive hole and have been managing to keep head above water but for the last 8 months the interest payments have killed us. We are both clearly terrible with money.

We have looked in depth and the only logical option is to default on these and build up emergency fund. Once they are all defaulted we will start the DMP with step change and plan is to cut our cloth accordingly reduce expenses further and pay in £1400 a month and have the DMP cleared in 6 years.

Our main current accounts are Natwest and Halifax and we have a joint acc with Halifax. All of these have Overdrafts. We have subsequently opened up Monzo personal accounts and a joint ac. We are planning to use the joint acc for getting our salaries paid and all expenses. We will then split money into pots to control and manage the budget.

I have done a full SOA and will place it below.

Questions I have:
1) Is this strategy advisable?
2) I am due about £3600 in back pay after tax in the next 2 months. Should we pay off the Overdrafts (£3681.90) My thinking behind this is that from my research they take much longer to default and don't want to delay the healing of credit file further.
3) How much emergency fund do you recommend?
4)We have a mortgage with Halifax for £400k at 4.04. This is a fixed rate for 2 years until August 2027. Will we struggle to renew this mortgage if we default on the loans and credit cards we have with Halifax or will it not matter as staying with the same provider they wont do a credit check?

Sorry for the long post here is the 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......... 3

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

Monthly Income Details[/b]

Monthly income after tax................ 5398.74

Partners monthly income after tax....... 3433.8

Benefits................................ 0

Other income............................ 0[b]

Total monthly income.................... 8832.54[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 1936

Secured/HP loan repayments.............. 176

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

Management charge (leasehold property).. 28.5

Council tax............................. 283

Electricity............................. 81.26

Gas..................................... 110

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

Water rates............................. 66.12

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

Mobile phone............................ 147.84

TV Licence.............................. 0

Satellite/Cable TV...................... 9.17

Internet Services....................... 36

Groceries etc. ......................... 650

Clothing................................ 100

Petrol/diesel........................... 160

Road tax................................ 16.62

Car Insurance........................... 44.49

Car maintenance (including MOT)......... 25

Car parking............................. 72

Other travel............................ 32.58

Childcare/nursery....................... 1328.14

Other child related expenses............ 7

Medical (prescriptions, dentist etc).... 19.54

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

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

Contents insurance...................... 26

Life assurance ......................... 211.63

Other insurance......................... 251

Presents (birthday, christmas etc)...... 150

Haircuts................................ 54.17

Entertainment........................... 0

Holiday................................. 0

Emergency fund.......................... 50

school uniforms......................... 20

after school club....................... 20.25

savings................................. 25

football for kid........................ 42

swimming for 2 kids..................... 81

gym membership.......................... 45.99

toiletries.............................. 50

child maintenance....................... 500

hp car 2................................ 108

pcp car 1............................... 230.26

school bus.............................. 187.5

car 2 fuel.............................. 60

car 2 mot + maint....................... 29.17

car 2 road tax.......................... 26.68

car 2 insurance......................... 58.62

union fees.............................. 22.6

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

Total monthly expenses.................. 7579.13[/b]

[b]

Assets[/b]

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

House value (Gross)..................... 750000

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

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

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

Total Assets............................ 750000[/b]

[b]

Secured & HP Debts[/b]

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

Mortgage...................... 408122...(1936).....4.04<

HELP TO BUY....................120000...(176)......0[b]

Total secured & HP debts...... 528122....-.........-   [/b]

[b]Unsecured Debts[/b]

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

Marbles........................7996.64...239.9.....36.1

Halifax cc LO..................7946.75...238.4.....25.59

Halifax Loan...................4691.35...306.7.....6.4

Natwest OD HO..................1704.29...75........9.8

Next pay in 3..................219.93....73........0

Klarna.........................285.3.....80........0

Halifax cc HO..................5907.26...177.2.....10.77

HSBC...........................8500.6....255.2.....24.9

MBNA HO........................9150......274.5.....25.97

MBNA LO........................11998.1...359.9.....25.97

AMERICAN EXPRESS...............30168.4...905.......33.9

Barclaycard....................3899.76...116.9.....1.99

Vanquis........................1996.55...59.9......0

virgin money...................1494.36...44.83.....22.5

SANTANDER......................13700.....411.......2.2

Halifax joint OD...............737.47....36.87.....9.8

Halifax OD LO..................1240.14...62.01.....9.8[b]

Grumpelstiltskin

A quick few questions. Why is life insurance so high? What are the other insurances? Contents insurance but no buildings insurance?

All clothing expenses need lumping together, same for children's expenses

£50 emergency fund yet no cash savings?

ManyWays

Barclaycard....................3899.76...116.9.....1.99
are you sure the interest rate are correct? It looks very low, could it be a monthly rate? 

SANTANDER......................13700.....411.......2.2
same question if this is a credit card. If it's a loan its very low for an unsecured loan?

hp car 2................................ 108
when does this end?

pcp car 1............................... 230.26
when does this end and the car essential, as you will not be able to get another car finance at a reasonable rate

child maintenance....................... 500
when does this end?

Smudgeismydog

Your net monthly income is a very healthy £8,832, and it appears to cost £7,579 to run your household. Childcare costs are high, we know how expensive it is, but this will reduce / stop at some point which releases this money. Are you in contract on your mobiles? And as Grumplestilskin noted, your insurance figures needs clarifying.

However, I think it’s really important to understand and then address how you accrued £109k of debt. Do you know what this been spent on? Is everyone on board with making the necessary changes to lifestyle?

cheshbon

Grumpelstiltskin said:

A quick few questions. Why is life insurance so high? What are the other insurances? Contents insurance but no buildings insurance?

All clothing expenses need lumping together, same for children's expenses

£50 emergency fund yet no cash savings?

Hi,

• Life insurance: 

My policies

Vitality - £430,290 on death and £93,294 on sickness with 31 years left paying £44.03pm

Vitality - £165,664 on sickness with 31 years left paying £51.47pm

Zurich - £48,000 a year Family Income plan with 16 years left paying £22.68pm

LO Summary

Death = £430,290 and £4,000 a month

Sickness = £258,958

Total cost = £118.18pm

OH policies

Vitality - £355,726 on death and £113,992 on sickness over 31 years paying £59.94pm

Guardian - £160,590 on death over 31 years paying £10.40pm

Guardian - £48,000 a year Family Income plan with 16 years left paying £23.11pm

OH Summary

Death = £516,316 and £4,000 a month

Sickness = £113,992
Total cost = £93.45pm

• Clothing expenses 

I will group these together

• Savings and emergency fund

Our plan is to cut expenses right back immediately to essentials only and try and save anything above the DMP target

cheshbon

ManyWays said:

Barclaycard....................3899.76...116.9.....1.99
are you sure the interest rate are correct? It looks very low, could it be a monthly rate? 

SANTANDER......................13700.....411.......2.2
same question if this is a credit card. If it's a loan its very low for an unsecured loan?

hp car 2................................ 108
when does this end?

pcp car 1............................... 230.26
when does this end and the car essential, as you will not be able to get another car finance at a reasonable rate

child maintenance....................... 500
when does this end?

-I will need to check on these interest rates but the santander and Barclaycard were balance transfers on 0% rate and fell back into the trap by overspending on the cards that they cleared

-HP on the car 2 ends in 8 months as car will be fully paid off. The car is worth about £3500 now but low mileage and no major issues at the moment. gets me from a-b safely.

-PCP car 1 - PCP end NOV 2026 with final settlement figure of £11,452.50. This deal is at 8.4%apr. Based off current values there will probably be about £3000 equity in the vehicle at final payment date. I may have to move onto a cheaper vehicle lease deal or research what other options are available. 

-child maintenance will finish in May 2027

cheshbon

Smudgeismydog said:

Your net monthly income is a very healthy £8,832, and it appears to cost £7,579 to run your household. Childcare costs are high, we know how expensive it is, but this will reduce / stop at some point which releases this money. Are you in contract on your mobiles? And as Grumplestilskin noted, your insurance figures needs clarifying.

However, I think it’s really important to understand and then address how you accrued £109k of debt. Do you know what this been spent on? Is everyone on board with making the necessary changes to lifestyle?

-Childcare costs are due to reduce this September as we get 30hrs a week free during term time. They will then come right down when our youngest starts reception in September 2027. We will still have some childcare costs for after school clubs which allows me to work overtime which pays about 4 times the cost of childcare. We will also have to cover holiday camps so we can balance a/l time off work during holiday times.

-The debts started racking up in 2021 when my OF was on maternity leave where she was on statutory payments for 8 months. This was then exasperated by childcare costs starting January 2022 and then our youngest being born Jan 2023. This 8 month maternity period again on statutory coincided with the famous September 2022 budget and the interest rate rises which unfortunately we had to swallow on the mortgage being renewed March 2023. This increased from £1150 to £1960. Due to the childcare cost and single income we relied on credit cards for our expenses which I then made the stupid decision to balance transfer to 0% deals and then continue to spend rather than making the necessary changes. The interest payments have now become too much, there is no more credit left and impossible to pay back this debt without some drastic measures. My OH is mortified with me as I was trusted to keep our finances healthy but I have screwed it all up by trying to keep our heads above water but its become too much. We are both on board with drastic and serious changes as if we don't do this we will risk defaulting on the house which we cannot do. So yes we are onboard. We previously saved quite well before children by separating our money into envelopes but can do the same digitally with Monzo so plan to pot the money up like this. The fact that we will both have full visibility means I cannot do anything stupid without my OH seeing it. I have royally screwed this up but we need to get this right so want to have a decent plan in place and not just impulse on this.

cheshbon

Smudgeismydog said:

Your net monthly income is a very healthy £8,832, and it appears to cost £7,579 to run your household. Childcare costs are high, we know how expensive it is, but this will reduce / stop at some point which releases this money. Are you in contract on your mobiles? And as Grumplestilskin noted, your insurance figures needs clarifying.

However, I think it’s really important to understand and then address how you accrued £109k of debt. Do you know what this been spent on? Is everyone on board with making the necessary changes to lifestyle?

apologies I forgot to address the mobile phones. Yes unfortunately they are in contract until early 2027. This is a wasted cost as its vanity to have the latest phone and not needed. Part of the problem which I admit and am open about.

Regarding contents and buildings cover the £26/month is for both and sufficient for our contents and building cover.

I also want to thank you all for your comments so far. I really appreciate all your insight so far. I know we have to do this but having the knowledge and experience you all can share can help us make this as successful as possible and make the real changes to be debt free in the next 10 years...that is apart from the mortgage which will be more difficult to clear in that timeframe. 

Grumpelstiltskin

I don't understand all the insurances having never had anything like this but it does seem to me you are over insured.

Not understanding them I can't advise you how to bring the cost down but I am sure someone will be along with ideas.

RAS

Does your employers offer any sort of pension? What are the terms of those? If either of you are in a union, most likely your have some sort of pension on death and possibly a lump sum?

cheshbon

Grumpelstiltskin said:

I don't understand all the insurances having never had anything like this but it does seem to me you are over insured.

Not understanding them I can't advise you how to bring the cost down but I am sure someone will be along with ideas.

I need to review these as you are probably correct. I have a very good defined benefit pension as I work for a rail operator. The benefit on death is £250k lump sum and then smaller monthly payments. I could probably reduce my insurance as a result. 

I also have a pvt pension but there is only about £60k in this. The union I belong to also has a death in service benefit of £100k.

The other insurance for £251 is for pvt medical cover for the whole family. We had this from when the children were younger as they had some health issues but need to have a discussion with the OH about dropping this or reducing it to a hospital only plan.