Is my financial situation really bad?

[MessyJessyy]

DH is in the armed forces. We have 2 DC and youngest will be starting school in September. I’m studying at the moment and taking care of all childcare with DH away for long spells.

We have £2,500 on a credit card
We have a loan with £16,000 left to pay on it. This was taken out to buy our car but also incorporated some other small amounts of debt. This is due to be paid off in April 2024.
We have a help to buy ISA with £800 in it.
We have an instant access savings account with £200 in it.

DH has had a substantial pay increase recently, which means we have £1,300 after we pay our main household bills each month. The money left is to cover food, fuel, clothing, any car related expenses etc.

I have no pension. DH has a decent pension through the armed forces.

I am 31 years old.

I would also pay off the loan faster!

Not great but looks like it will improve soonish.
Use the pay rise to put towards your debt, which will clear it off quicker.
When will you have finished studying/be able to go back to work?

Pay off the loan as soon as you can, then set up a private pension.

I’ll be finished studying by summer. My plan is to try to find a job starting after the school holidays to avoid having to cover childcare for those holidays.

So am I better off paying off the loan quicker? Or would I be better off putting the extra from the pay rise into the savings account/help to buy isa? We want to buy a house when our eldest starts secondary school (in around 5 years).

I should have mentioned. The credit card is on 0% which runs out in September. Most of the money on there was towards the costs of the course I’m doing.

?

Interest on savings won't outweigh the interest on your loan so not worth it. definitely get the loan gone asap. 0% credit card is not so bad.

I think that's probably similar to a lot of people in their late 20s to early/mid 30s. It's great that your DH has just had a pay rise and that you're due to finish your studies soon- perhaps try to pay the loan off more quickly if you can.

Interest on savings won't outweigh the interest on your loan so not worth it.

Interest rates on the loan are 2.9% annually. With the help to buy ISA, we will get an extra 25% of what we save from the Government. That’s what’s making me unsure.

Pay off the loan. Get yourself a pension.

It’s not great, but it’s salvageable with some effort. As well as getting support here, I’d recommend the Moneysaving expert debt-free wannabe Forum

forums.moneysavingexpert.com/forumdisplay.php?f=76

Loads of people on there are or have been in your position will give advice and encouragement.

If your credit rating is good you may be able to transfer to another 0% card. If you are maxed out on credit you may not get all of the debt on one card. I managed to get two 0% cards. Keep up minimum payments and a little more if you can. Cc debt is lowest priority if it is 0% but don't spend on them anymore.

What is this interest rate on the loan? What is the interest rate on the isa. If you pay off the loan you can get a higher mortgage because a loan is considered fixed expenditure and taken into account when deciding what to lend.

If you save in a lisa, you will make some interest, but it can only be used for the deposit, and it might not lower your payments as you might be lent less because of the loan. Given that interest rates are pretty low, a higher mortgage isnt so risky. Having zero savings and a lot of unsecured debt is though. So I would pay off the loan first.

I only started a pension at 34. As a general rule, half your age you start paying and that is the % you should pay to get a decent one. Pensions outperform LISAs so if you have a company one in future its worth doing.

Pay off the loan. It'll count against you in a mortgage application anyway.

Is the course that you're doing something that gives you a set career path afterwards? Are you able to get a decently paid job afterwards, to build up a pension and pay off the debt; as well as save for the house?

^all learnt from MSE!

Can't you sell the car to pay off the debt? Sound like it was a pricey car.! Buy a cheaper one

Unfortunately the car has depreciated in price a lot since we bought it and would sell for nowhere near what we need to pay off on the loan. It’s a really good car though and our plan is to pay it off, keep a hold of it and run it into the ground.

I would pay off towards and the loan and put some each month toward the house deposit, you also can’t get a mortgage without a deposit.

To be honest I don't think you are in a bad situation. Not ideal but definitely not bad. As others have said pay off the loan as soon as you can.
I'm 32 and had a £15000 car loan at £300 a month, £1000 a month mortgage, £300 a month childcare and £3000 on a 0% credit card. We recently paid off the car after receiving some money and that leaves us £300 a month better off. I've been using that to pay off more on the credit card every month.
Once you are out of studying and can get a job things will seem to take care of themselves more I think. You start over paying on the loan, then poof that's gone, then you tackle the credit card. Then suddenly you are so much better off a month.
Yes savings are important but I personally think
Paying off the debt will leave you in a better situation quicker. I have £50 that goes to savings automatically every payday. Then if anything is left in my bank account every month I put that in the savings too.

You say you have £1300 left over after all bills for which food, petrol etc come from. Can you work out how much is spent on those things and then put the rest in savings and work on doing that? The loan would need to be looked at in the terms and conditions about paying it off early as some come with an admin fee and some won't decrease the term of the payment just the payment or some the other way, decrease the term of the loan but keep the payments the same (this is from experience). The credit card you would need to see about paying off more than the minimum amount to get it paid off quicker.

The loan finishes just before you plan on buying a house so that won't be on your mortgage application.

I think there is a limit on how much you can save per year on your help to buy isa. I'd put in the maximum you can per year on that and any extra pay off your highest interest rate credit card or loan. The 25% extra you get on your help to buy will compensate for the interest you are paying on the loan/credit card.

Really minimise spending in other areas to get that loan down as much as you can.

You and everyone else OP

You're in a much better position that a lot of others. At least you have money left after you pay rent.

If you already owned a house and had a decent chunk of equity then your current situation would be pretty ok.

People make a huge deal about pensions. TBH it's not as much of a big deal as people say. Firstly almost all pensions are virtually worthless, and by the time you have qualified to claim anything you'll be to old to enjoy it. Also, thirty years from now, retirement just won't be a thing.

You need to prioritise getting enough for a deposit, the sooner you get on the ladder the better.

I'd put whatever you can from the loan onto 0% cards, then focus on clearing the remainder of the loan as fast as possible before you start saving more

Okay, I’ve set up a standing order for £300 per month for the credit card. £25 per month to the instant access ISA (because we need to have some money there incase of emergencies). Once the credit card is gone, I can increase the loan payments massively. Even if I up that by £180 a month, the loan would be gone by December 2022. I could do that whilst also popping a little extra into the help to buy ISA. Obviously once I’m earning, that’ll open up the possibility for clearing the debts more quickly. Does that sound like a better plan?