Do we have a problem?

KL78 · 21 May 2019 at 10:08PM

Hello everyone,

We are a family of 4, Me, DH, DS (14) and DD (12)

Last month we applied for a mortgage. We wanted to move to a better deal, plus borrow an additional 10K to sort out our extension. We were declined! This came as a shock as we never expected it to happen.

I would describe our life as comfortable. We have decent jobs and like to enjoy life. We both have newish cars, a caravan that we visit very regularly and also enjoy holidays and weekends away etc. We do have quite a bit of debt, but I never saw it as an issue. Here are the debts....

My car Loan - £275 per month. Balance £11000 ( approx)
DH car loan - £297 per month Balance £13000 (approx)
Caravan finance £265 per month Balance £10200
my credit card - £4800 - 0%. I pay £100 per month
DH credit cards £5000 - not all 0%. Pays around £130 per month
0% furniture/household goods - £150 Balance £3000 approx

We take home around £4300 per month between us. Our mortgage is £815 and our regular bills and direct debts come to an additional £690.

Food and Money for kids activities come in at £500 per month

This is a grand total of £3222 per month.

We save £100 into an emergency savings pot and we have £4000. This is for house emergencies such as the boiler breaking etc. We also save some money for our kids (£50 each) to contribute towards university costs etc.

This means that we have about £878 per month. We tend to use this for holidays and entertainment.

I guess I have never felt that we have had a problem as although we have a lot of bills, we are always able to pay and we never run out of money before payday etc. Our CC debt is related to home improvements so we aren't racking up CC debt each month.

A mortgage broker has told us that we will definitely be able to secure the mortgage with a different lender, however we are putting the brakes on this for the time being.

Do we have a problem?

sourcrates · 21 May 2019 at 10:30PM

Hi,

You have 47 thousand pounds of debt, which is a lot in anyone’s book, yes you have a good income, but it equates to almost a years salary for you both, the mortgage company probably thought this was too high and may make your new payments unaffordable.

You may have better luck with a broker, or maybe try to reduce the debt a bit.

lopsyfa · 22 May 2019 at 8:54AM

As above, you currently have 47k in debt and an additional 10k debt will make your total debt about 57k. During mortgage/remortgage, application the lender will need to perform a stress test to check you can afford the mortgage if the interest rates goes up to something like 10%. I think that may have been the reason for your rejection.

I think you need to focus on paying down the debt and then try the remortgage maybe after you have halved the current debt. If you throw your spare money (about £1000 according to your OP) together with your current monthly payment, you can cut the debt into two in 1 year. You may also want to post a statement of affairs (SOA) so the more experience members can maybe identify where you can make some savings.

I will also look at paying the interest pay part of your partner's credit card using some of your emergency savings (not everything) and maybe keep the available balance on your 0% cards for emergency above whatever cash you have left. You can then build the emergency savings back up slowly.

The other thing to consider is will you be able to meet all your payment obligations on one of your incomes (consider one of your companies going into administration, etc). By addressing the debt now, you will be in much better position to handle such situations and maybe even retire early.

To answer your question, no you don't have a problem now but you need to do something now to avoid problems in the future.

This may actually be a blessing in disguise.

kazwookie · 22 May 2019 at 9:02AM

47K problem I would say.

Do you need both cars? can you have cheaper cars / send them back to reduce the amount owed?
How often do you actually use the caravan? can you hire on site one forthe same amount that you use the one you have? / can you sell the caravan and pay off the owing amount.

Do you actually have the ££ amount left over each month that you think you do?

You seem to have good salaries, what would happen if either of you were unable to work due to illness / lost your jobs for what ever reason? what / who would cover the ££

Good luck

NorthernMonkey1 · 22 May 2019 at 9:05AM

Just short of £10000 on Credit cards, especially if some of this is not 0% is a lot. Although your payments are manageable, the Mortgage co will look at how your debt is increasing or decreasing over the past few years. If its showing a steady increase it could show you're spending more than your earning, which would raise concern.

System · 22 May 2019 at 10:15AM

Yep you have a problem. If you or your partner lost your jobs, you'd be in lots of trouble. Debt is only manageable when everything is going smoothly.

tallyhoh · 22 May 2019 at 11:41AM

I can understand having debt of 0% or even paying interest on very large purchases like a mortgage. Here you have a very reasonable income so why are you paying interest on a credit card?

In the same situation I would be considering downsizing the cars & selling the caravan to finance the extension instead of just putting even more onto finance.

As the other posters mention debt is fine unless one of you loses a job, happened to us unfortunately

ReadingTim · 22 May 2019 at 4:58PM

You're teetering on the edge of a very big problem because you've fallen into the classic trap of thinking just because you're meeting the minimum repayments very month then all is well.

It isn't.

First off, what would happen if one of you lost your job or the family was without one income for a few months - how long do you think you'd last?

Secondly, how long will it take to repay the entire amount? Is it even possible? I notice there are some pretty big amounts on cars etc - are these loans to buy the vehicle outright, or finance deals whereby you're essentially renting the thing for 2-3 years because you can't afford the final balloon payment, or don't even get the option to buy at the end?

Thirdly, what happens when the 0% deals come to an end? Will the amounts be paid off, or will you still owe money? What were you planning on doing then? Could you afford the repayments at the standard rates?

You say you're not adding to your debt every month, but you don't seem to be reducing it by much either. You're not saving much either, and the savings you do have only represent 10% of the amount you owe.

Basically, you're just about staying afloat, and it's not going to take too much to sink you. But you've seen the looming iceberg and have time to avoid it: can the extension, reign in the spending on holidays, entertainment etc and concentrate on paying down debt - you need to eliminate all of the non-car stuff as a matter of urgency. Suggest also review the caravan, and consider driving older cars, or hanging onto the current ones for quite a lot longer than previously.

Good luck - you're going to need it as you're going to face some hard questions and tough choices, which will represent quite a change from the comfortable life you've been enjoying up to now. In short, things need to get uncomfortable until the debt is gone.

Happier_Me · 22 May 2019 at 5:43PM

You've had some tough responses but the thing to bear in mind is that many of us that are active on this site have been seriously affected by problem debt or are that risk averse we see your debt as a problem just waiting to happen.

I've known lots of people coasting through life similar to you and along comes a job loss or illness and their world falls apart very quickly. It can and does happen.

So, this is a question of lifestyle and risk. You can afford the repayments so you can choose to do nothing to address your debt levels but you also must accept the risk that a future life event could have a massive impact of your lifestyle and your wellbeing. Change nothing and you'll likely be working into your 70s to pay for today's luxuries and to maintain your comfortable life. Is that what you want?

Life is all about balance as far as I'm concerned: spend a bit on essentials, spend a bit on luxuries, save a bit for now, save a bit for the future. Have you got the balance right?

Welcome by the way:D

enthusiasticsaver · 22 May 2019 at 10:49PM

I would say that £47000 debt is a lot of unsecured debt on top of the extra £10k debt you want to borrow plus your mortgage. Even if you have a high income you will be extremely vulnerable if one of you loses their job. Why on earth are you paying credit card interest on some of your DHs debts when you have savings of £4000?

Meeting minimum repayments only is not ideal and does not give the impression that you are more than one payday away from it all collapsing. You say you like to enjoy life which I would say most of us would but taking on such huge commitments mean that servicing your debt including your mortgage is taking almost half of your income. In comparison you are saving £200 a month which is miniscule in terms of percentages. Also your children are teens and almost teens and university is only a few years away if they go. £50 a month is a drop in the ocean towards the costs of that. Will any of those loans be gone by the time they get to university as your parental contribution will be judged as being quite high on your income?

bspm1 · 22 May 2019 at 11:22PM

I make it closer to 52k worth of debt.

Do we have a problem?

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free