Debt and Job loss

dprovan

Two months on, and it’s hard to believe it’s only been nine weeks, it feels much longer. The situation is still far from perfect, but I’m still in my job and there have been no processes, warnings but plenty of folks are unhappy and the situation continues to hold risk. There is no guarantee for the future, but I’m in a much better position mentally and practically to deal with anything that might come up.

Financially, my wife and I have focused heavily on building some emergency funds and cutting our cloth accordingly. We’ve saved consistently on top of what we already had, and we have enough to cover over nine months of my full salary, or around 65% of our outstanding debt if needed. For now, we’re continuing to prioritise savings so we keep maximum flexibility of what we can do with that cash. If things remain stable workwise for the next six months, we’ll reassess and may start targeting some of the credit cards more aggressively.

On the credit cards, we’re currently paying the minimum required payments. We managed to secure a couple of lower‑interest deals, which helped. We’re still paying interest on some balances, but of the £2,500 per month going to the cards, roughly £1,800 is actual repayment and £700 is interest. The interest is frustrating, and there are moments where a DMP crosses my mind as making more sense, but my wife would prefer to avoid that if possible — and as long as my job holds steady, in truth, we can afford the payments and save a decent amount alongside it. Our income grew in recent months (we can still put about £1,000 away a month after paying cc payments). If circumstances change and a DMP becomes necessary, I won’t feel guilty: we’ve already paid more than enough in interest over the years.

Work-wise, I’m taking things one day at a time. Some days are manageable; others are extremely difficult. But I’m holding on. In 20 months, I’ll be in a position where I can walk away if I choose to. The plan remains to keep making the monthly payments for those 20 months and then clear the remaining balance with a pension lump sum I’m due and we will be debt free. At that point, I can reassess whether to stay on and accelerate pension contributions or move to a lower‑paid but less stressful role.

If anyone has further suggestions, I’m happy to hear them. Otherwise, thank you to everyone who offered advice nine weeks ago, things felt far more uncertain then than they do now, whilst the future is not secure, I feel I have a plan and options.

MEM62

If you have nine months salary in your war chest that would cover what? A years' living expenses? And that is before anything you may receive severance-wise from your employer if you loose your job. I think that is a big enough buffer than you can now look to getting rid of some of the highest interest debt. No point in paying £700 pound monthly interest payments just to build you buffer further. I understand that the scare may have driven you to secure you position financially but, as I see it, the priority is now swinging from building the war chest to getting the debt down.

dprovan

I know this is hypothetical, but my mind keeps jumping to the “what if.” If I were to lose my job, which still feels like a real possibility, I think I have two realistic options, should I find myself there.

Option A: Use savings to bridge the gap between my current salary and whatever I earn next. I’m unlikely to get a role at the same level or with the same responsibility (and wouldn't want this), so the difference could be anywhere from £1,500 to £2,500 less per month. This would allow me to continue paying all bills and debts exactly as I do now, with no need for a DMP, and I’d continue paying interest as normal. Based on rough calculations, our savings could sustain this approach for around 20 months, which would take me to the point where I can access my pension lump sum and clear the remaining debt.

Option B: Enter a debt management plan and limit the use of savings to a maximum of £1,000 per month to cover the shortfall in new earnings and outgoings. Under this option, the full £1,000 per month would go to the DMP (what i would plan to pay) instead of the current £2,500, which protects more of our savings. This would reduce the debt more slowly but would preserve our financial buffer and potentially allow for settlement offers later on.

Financially, Option B seems more sensible because it protects our savings for a wider range of eventualities and reduces risk, but it does come with the practical considerations of having to manage a DMP and the possibility of creditor escalation/court/knocks at the door etc.

I’d really appreciate hearing other people’s views or experiences — what you would do or what you’ve done in similar situations.

MasterG83

https://forums.moneysavingexpert.com/discussion/comment/81872914#Comment_81872914

I tend to agree with this, the trick now is to balance it all. Your emergency fund is large enough I would say, why not make yourselves even more bulletproof by starting to clear down the debts smallest to largest. You cant imagine the feeling when you do, its great. Can you re-list the debts and I will reply with my own plan.

MasterG83

Just remember we live a short life, you cant get this time back worrying and planning too much, clear donw some debt, live your life, make memories.

MEM62

https://forums.moneysavingexpert.com/discussion/comment/81878744#Comment_81878744

Absolutely. @dprovan Getting rid of debt strengthens your financial resilience just as much as building your cash reserves - in fact, even more so because (a) you are reducing future interest interest (consider the snowball effect) and (b) making future payments smaller and therefore easier to manage on a reduced income.

Seriously, start getting rid of your debt.