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 down 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.

dprovan

Five months on from my original post and two months on from my last update.

Financially, things are improving. Almost all credit cards are now on 0% and monthly interest has dropped to around £130 so more than 2k paying off debt per month. We’ve continued to build our buffer and keep things manageable. I’m still weighing up the balance between growing savings and tackling the debt more aggressively. Some days I lean toward clearing the debt; other days I think about protecting the emergency fund and keeping options open, especially with the wider job situation feeling unpredictable.

There are changes at work, but it is uncertain, so I think some kind of severance remains a real possibility. So I think savings gives us greater options. Savings currently sitting at 65k and debt 87k. With a net gain of 3k every month (2 k to debt and 1 k to savings).

If i lose my employment without strong severance we still have a DMP as an option so I am slightly favouring the savings as it gives us more options.

My preferred scenario is redundency and moving to a lower stressed job.

My wife and I have decided to increase pension contributions into one of my three pensions ( using the interest we gain on the savings and a pay rise I am due) as we can access this next year if we want (when I am 55) and the tax free bonus of 40% is a significant plus.

My plan was always to use the lump sum from the other two pension pots to clear any outstanding balance on the cc next september which is still the preferred option if event dont overtake that plan.

I’m also trying to focus more on what actually matters, family, health, and keeping a level head, rather than letting work dominate everything. My kids are not getting younger and have their own major life events which I want to be present mentally for. It’s a work in progress, but I’m getting there.

I’d welcome any thoughts from others who’ve been through similar periods of job uncertainty or who’ve had to balance debt repayment with maintaining a strong safety net. Thanks again for the support so far.

I am concious that this might sit better in the diary section, happy for moderators to decide.

ArtyJ931

I don’t think you have ever done an SOA so that may be a good place to start. With an, as I see it from this, mortgage of 55k savings of 65k and debt of 87k you have loads of options and I don’t understand the stress about taking a lower paid job or being made redundant with the above financial situation.

You could clear most of the debt and what would be left outstanding with your mortgage repayments sounds like it wouldn’t be massively expensive even if you took an averagely paid job.

maybe there is something I am missing but an SOA which other knowledgeable posters can advise on might alleviate your worries

sourcrates

You have 65k in savings, you have nothing to worry about.

You could, in theory, repay your mortgage, should the need arise, is the 87k of debt all unsecured?

ManyWays

Yes you are in a good position to an outsider. When you are in it, it must be hard to feel comfortable with the uncertainty.

I suggest immediately clearing the cards that are not at 0%. Simplicity is a big virtue, especially in uncomfortable times. There are NO advantages to a massive safety net and paying credit card interest.