Ditching the last of the pizza debt

ani*fan · 10 July 2017 at 7:41AM

Hi everyone :wave:

I'm an old-timer around here and have managed to reduce my debt from £18,780 in February 2014 to £6,750 today. That's £12,030 paid off and I could not have done it without the help of Martin and everyone on here. Thank you, lovely people! :A

I thought I'd start a new diary as my circumstances have changed considerably since Feb 2014 and it feels like a whole new stage of life. I'm about to be married; this is all saved for, who knew I could save?

I've also bought a flat with OH; the deposit and fees were all saved for with some help from future in-laws too, who knew anyone would ever give me a mortgage?

I've finished my training course, who knew I could do that? :beer: Things are good right now and the final hurdle is getting rid of this debt. OH refers to it as 'pizza debt', the debt I have nothing to show for, when I bought stuff I didn't need, for no reason, like takeaway pizza. It made me laugh and it's absolutely true.

So, the debt looks like this:

HSBC £4,950 0% 'til October 2018
Overdraft £1,800 0% 'til September 2020

HSBC is the target debt and I pay a fixed £150 every month towards this, roughly £20 over the minimum amount. The overdraft is not being paid off at the moment, other than once a month when my wage goes in. I discovered my credit is good when we got the mortgage and I'm trying to keep it that way.

The flat we bought was an absolute bargain and has the potential to be beautiful but is in serious need of repair. This is the main ongoing financial concern at the moment and I am on it to keep costs right down. So far so good, but we'll see.

A few things I've discovered along this debt-busting journey:

I've become quite good at managing money, but it can all go to bits in a moment so I still need to work hard at keeping on top of it.

Getting my debt on 0% was the single biggest factor helping to reduce the debt.

Car free living was the second biggest factor and I hope to never own a car again.

So that's where I'm at. Feel free to comment, advise, whatever. It's lovely to be sharing this last part of the journey with you all.

ani*fan · 10 July 2017 at 8:22AM

In our old rented flat we had no emergency fund. I had a think about it, but felt that because any flat repairs were covered in the lease and I had no car therefore no surprise bills, I didn't need one. This was mostly true.

When we started saving for the wedding and for a house, I thought these pots could double as an emergency fund. In the excitement and general disorganisation of the move a couple of months ago, I forgot to shift cash around in time and missed a payment on a CC, therefore losing the 0% deal. This was indeed an emergency so I paid it from the wedding fund and the previous flat deposit. Crisis averted.

Now I'm a flat owner, I definitely need a proper emergency fund. The house pot is spent (obviously). I still have the wedding pot but that will also be spent quite soon leaving us with absolutely nothing. :eek: This is not a little bit scary.

At the moment our disposable income after all living expenses is around £1,100. For the last 2 months this has been used for wedding savings, furniture and essential repairs to the flat like electrics. There are many more repairs that need to happen but we are almost sorted for furniture (the spare bedroom can wait).

I need to decide how much to save every month, what the target should be and where to put it. I have a present pot, £50 per month to cover all gifts for the year. Could I just stick it in there? I also have an account with the TSB for my monthly spends, mostly to get some extra interest, maybe I could put it in there?

The emergencies I'm thinking of could be fridge/freezer, boiler, cooker or heating breakdown. Would £1,000 be enough? More? What else could go wrong?

I'll maybe start with £200 per month. All advice gratefully received.

in_need_of_direction · 10 July 2017 at 9:31AM

Hello, followed you over. I asked the same question in a thread on here a while back. Advice was between 3 and 6 months expenses so I looked at what outgoings would be if I wasn't working and multiplied by 4.5 and went with the nearest round number. I still have things I'd like to buy and work I'd like to do to the house but that fund has only been dipped into twice and has been replaced both times. Can't remember why the first time but the second was to repair OH's macbook.
Anyhow, great to see such a positive start to the new diary. Can't wait to continue to be inspired by your progress.

hiddenshadow · 10 July 2017 at 11:17AM

ani*fan wrote: »

At the moment our disposable income after all living expenses is around £1,100. For the last 2 months this has been used for wedding savings, furniture and essential repairs to the flat like electrics. There are many more repairs that need to happen but we are almost sorted for furniture (the spare bedroom can wait).

I need to decide how much to save every month, what the target should be and where to put it. I have a present pot, £50 per month to cover all gifts for the year. Could I just stick it in there? I also have an account with the TSB for my monthly spends, mostly to get some extra interest, maybe I could put it in there?

The emergencies I'm thinking of could be fridge/freezer, boiler, cooker or heating breakdown. Would £1,000 be enough? More? What else could go wrong?

First, I would definitely NOT just stick the money in with presents. It could live in the same bank account, obviously, but you need a way to know that £X of that account is your EF vs £Y for gifts. Otherwise you run the risk of saying "ooh, I could buy OH a £2k computer for Christmas!" (not that I've ever done anything like that......).

Various rules of thumb re: EFs that are out there:
- £1k as a "baby" EF, with the aim to build it higher once debt-free (Dave Ramsey)
- 2% of house value saved each year towards maintenance (not strictly an EF, but if relating to house expenses vs job loss, it's an OK rule of thumb)
- as INOD said, 3-6 months of expenses (I factor this as "if I'm sitting on the couch unemployed, thus not commuting or buying goodies, how much do I need to feed myself and pay the bills?", not "let's replicate our take-home pay" levels)

As your 0% deals are quite long-term, if it were me, I'd probably go with:
- save £1k ASAP to handle basic things
- whenever that's done, calculate how much per month you need to pay off HSBC (say that's in Oct, I guess it'd be ~15 months to pay off within 0% period, so ~£300/mo...schedule that as a Standing Order so you can't deviate from it (you could also set this up as a regular saver and earn a bit of interest, since there's no advantage in paying it directly to HSBC before 0% ends)
- then figure out whatever's left of your disposable income, and how much you want to/are able to devote to beefing up your EF. We went with the "jump in at the deep end" approach and decided to just try saving half our take-home pay, and figured we'd adjust if that felt super crazy/uncomfortable, but it's worked so far. You could do the opposite approach, though, start with £100 and increase by £10/mo until you feel like you don't have any spare to go into savings. Whatever works for you.

- long-term I'd shoot for both the 3-6 month EF and the 2% house value saved separately, so that your house maintenance pot doesn't double as your EF pot

EssexHebridean · 10 July 2017 at 12:27PM

I'd second the thing of having a dedicated amount for your EF - it's safer that way.

I'd also say start with £1k as a priority - then switch your priority back to the debts - perhaps allowing a token £50 a month to continue to trickle into the EF so you keep it growing a bit. Once the debts are gone then any surplus can be redistributed to savings - we use a combination of regular savers (1 each which so long as there is financial trust is better than a single joint one) which each let us save £500 a month - anything over and above that goes into the ISA. The regular savers we have each run for a year paying 5% interest - when they mature we've always transferred the money to the ISA although that may change this year sometime if we find somewhere paying better interest. Essentially our ISA doubles as our EF.

As you have a mortgage you may well choose to look towards overpaying - but read carefully what you're allowed to do and how you need to pay it on that - if you're on a fixed rate deal there will almost certainly be some form of restriction.

ani*fan · 10 July 2017 at 1:19PM

INOD and hiddenshadow...glad you could make it over here! And hi EssexHebridean. :wave:

OH just said exactly the same thing about 3-6 months living costs as an EF...now I feel like a part-timer, dipping my toe in with a plan for £1k when I should be aiming a bit higher! Saying that, whatever the target is, it will reach £1k before it gets any bigger.

I just need to start somewhere.

EssexHebridean, I've had a linked saver for the wedding pot that matures this month. It was just a test run as I'm not used to saving yet but it really worked for me. The cash went out by standing order, just like paying the bills, no hassle. And yes, OH is completely on board and we trust each other entirely so it's all good there, thankfully.

Hiddenshadow, EF separate from the pressies, of course, thanks for the reminder. I think I'll get another linked saver to start the EF. You're right about the 'paying off HSBC' dilemma. Do I divide it up by monthly payments, or save it separately to get some interest and then pay the card off in a chunk? It makes sense to get some interest, but I do really enjoy seeing the balance on the card go down and at the minute, all overpayments go to that card. Hmm.

Mortgage overpayments definitely need to start in good time for a big amount to be paid off before we remortgage. But at the minute, the renovations are a priority. Hopefully this will help too with a better L to V ratio when we remortgage. I'm desperately wishing for some carpets but it's just not time yet, too much to still be done.

Thanks for the help, I'm away to update my spreadsheet, inform OH of the plan and decide on a monthly EF savings amount.

dionysia · 10 July 2017 at 4:27PM

It's really inspiring to see your new diary with all the progress you've made and going forward into this new stage of your life!

mfmaybe · 10 July 2017 at 4:37PM

Joining you over here from your last diary.

On the card debt vs savings, how about saving your money for now (other than minimum payments); but working out your net debt position. So card balance less the (very clearly ring-fenced

) stoozing money. That said, it depends just how much interest you would be losing out on. Given current low savings rates, I might still be tempted to keep paying off the card.

EssexHebridean · 10 July 2017 at 4:38PM

If you need the motivation of seeing a balance drop then maybe continue to make the OP's as you have been and just get it gone sooner - 0% deals are great but the one I have currently, I never had any intention of letting it run to the 11th hour - it was always in my game plan to chip away at it via "free money" - surveys etc - and see it drop. The money that the items it was used for would have cost me is sitting in a bank account waiting to go off it if needed, but the more I can get gone via the free money route, the better!

Alternatively - and my current favourite debt busting method - set the DD to the level of the current minimum payment and let it run at that level - that way each month's DD has slightly more of an effect as the capital balance drops but you never notice any more of an impact on what comes out of your bank - plus because the DD isn't dropping each month you don't get into a situation where money gets left in your account to be frittered!

hiddenshadow · 10 July 2017 at 4:54PM

Debt-wise I default to paying the debt rather than stoozing, just for psychological reasons. (I say that after we've just spent the last year stoozing, but I had to set up my spreadsheet very carefully so that I could still see motivating numbers! And now that we've actually used our stoozed money for something else I'm sad to see the "true" mortgage balance again.)

As mfmaybe said, these days the interest you'd earn isn't really relevant, so if you get more motivation from a debt number going down, I'd say go for that. (For me, I'm way more motivated to save extra if I know I can OP it, but if it's going into savings I'm more like "meh, maybe I'll do it.")

Chandelier. · 10 July 2017 at 8:07PM

Happy shiny new diary

Isn't it amazing how things change over time. I'll subscribe and look forward to seeing your updates.

Ditching the last of the pizza debt

Comments

Categories

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