How bad is my financial situation.

[Creation]

I’m 31. I have 2 DC, youngest almost school age.

We have £1,500 on a 0% credit card.
We have a £15,000 loan which was used to buy a car. We pay £320 for this each month and it’s due to be cleared in early spring 2024.
We have £400 in an instant access savings account
We have £900 in a help to buy ISA.
Due to DH’s recent promotion, we now have about £1,100 left per month after bills.
I was hoping to start working soon after completing my studies but my plans are up in the air now due to Covid as DH is a key worker and so I am taking care of DC (one of whom is high risk).

We don’t own our own home (as you probably guessed since I mentioned our help to buy ISA).

Is this a bad situation to be in at our age?

All relative to where you are, here that would buy a 1-3 bed maisonette.

We would be looking to buy in the North or England. Thankfully prices aren’t so steep there as in other parts of the country.

I really want to buy by the time our eldest is in secondary school, which would be in just over 5 years. Not sure if I’m being too ambitious with that?

That's an eye watering amount for a car. I earn £80k and wouldn't contemplate spending more than half that. My last car was £6k second hand, it's lasted 7 years so far with no issues, just regular maintenance costs.

The car loan is an incredible % of your income compared to 'leftover' money for food and everything else. My own car cost 5 months worth of your repayments... 7 years ago.

You need to strip everything back to the penny. Switch providers, downgrade phone/TV contracts etc.
Set up little accounts for holidays, Christmas etc so you can see where your money is going each month. Overpay your credit card but cut it up in the meantime. Then plough money into your car loan. Then savings. Budget budget budget. A couple of years later you'll have a nicely growing deposit.

I've always been a big fan if a spreadsheet to look at annual money available rather than cash per month which can seam like a bigger chunk than you really have.

Some bills like car insurance, road tax, service and MOT, house insurance, professional subscriptions, Birthdays, Christmas are identifyable chunks of money you can predict needing.

You can then look at your higher cost months. Ours were September and January whilst June, July, August we typically have more cash available. By seeing that the cash is needed as September outgoings exceed income can help resist spending frivilously.

Work will no doubt become a reality for you at some point in the future and ironically it can cost quite a bit to start working. Whether you need a second car, a bus or train pass these are upfront costs. Will you need a work wardrobe? Will nursery be a deposit plus month in advance, charges for settling in sessions, possibly even second month upfront before you get your first full pay check? It's pretty tiring getting into a new family routine so food bills can get a bit higher initially so I'd budget a bit extra for that.

Your situation is what it is. You need to decide where you'd like it to be and work out the plan to move towards that.

There are various financial blogs and lines of advice that ring true to me. One that I think makes a big difference is having a couple of months money in a near instant access savings account. Like a life overdraft. That money is great should the car blow up, the boiler break down, you twist an ankle and need to use taxis for work for a month etc etc. Life is full of unpredictable twists and turns and building up a buffer you can dip into and replenish can remove a lot of the pressure around these twists. This is where I think you should start. Initially once built up it could be your upfront work costs fund.

It’s irrelevant at this point whether other people would pay that much for a car 🙄 it’s done now and you can’t build a time machine!

To answer your question I don’t think you’re in a terrible position but it’s not great either. You have very little in savings so if anything goes wrong, from the relatively minor such as needing a new washing machine or whatever, to the far more serious such as DH being made redundant or having to take a pay cut, you would immediately be struggling. That’s what would worry me in your situation.

I know some are very averse to any debt and would say to pay off the car loan and credit card asap but my immediate focus would be to clear the cc while on 0% and at the same time build up some savings as a buffer. When you’ve cleared the card you could possibly put that monthly amount towards the car loan.

If you never need to use your buffer that’s great and it can eventually go towards your house deposit but not having anything put by for the unexpected “life happens” stuff would be a big worry for me.

I would worry about the lack of savings. What would happen if unemployment hit? Could you survive a few months?

Why not try writing everything down and saving as much as possible. Then continue saving that AND everything extra (new job, wage increase, paid off debt etc).

The key for us was to never increase our lifestyle when our earnings increased. We were still living like students until we were in our mid 30s- cheap car, small house, minimum eating out, budget travel etc. Now we are in a great position. It doesn’t hit you so hard if you stay still rather than decreasing your lifestyle. Lockdown is a good time to reassess what matters though. Good luck

It sounds like you are comfortable as you are. Our leftover money sounds similar to yours. It easily goes but we have enough for kids clubs, food, days out etc. £15k for the car is necessary as you needed a reliable 7 seater. Buying a cheaper one would have been false economy.

To start saving to buy a house though I think you'd need to either:

1. wait till your working again.
2. Scrimp - no holidays, school clubs, lavish xmas's, big treats, etc

Personally, as your comfortable for the time being, I would wait till you're working to start saving, but that's just my preference as I hate living without the little luxuries!

I am taking care of DC (one of whom is high risk)

If your DC is disabled (you don’t have to answer). Then as well as you applying for carers allowance, you should also apply for DLA. If you need the 7 seat car because your DC’s mobility needs, then you’d be eligible for a motability vehicle which is paid for out of the DLA benefit. Then you would not need to have a £15k loan for a vehicle.
www.motability.co.uk/about/allowances/disability-living-allowance-dla/

I don't think it sounds too bad. I have similar debt- 260 car repayments, 50 sofa insurance, 50 pound on two credit cards. Im 31 with two kids although do own our own home with mortgage. I regret the credit cards, the car, we wanted a decent car that will hopefully last us ten years. It cost 12 k although I do wish we'd have spent a little less in hindsight. we have 1100 left after food, usually 400 budgeted to days out so 700 in savings or things we need for the house ect,
my aim to get the savings up
Pay the credit cards off +50
Pay the sofa off +50

If I was you I'd budget 400 for food
leaving 700
Once out of lockdown maybe 300 towards spends and 400 towards paying debt off but whilst on lockdown I'd just stick it all on paying debt off.

Lock down isn't for ever so least you know youl be getting an extra 600 at some point soon once you can work, you can just plough that straight into paying stuff off.

Does it include your child benefit money? if not put that into a separate bank account and use that for kids things, they don't need stuff every month so you can build it up a bit that then covers xmas presents, clothes for them ect.

Here’s what I would do. Based on prioritising whatever will give you most returns. You really probably only have £400 left over after food, clothes, life etc instead of £1,100.

£1,500 on a 0% credit card- stop using and plan to pay off before the 0% expires. So say it expires in ten months, then pay £150/mo. There’s no need to pay it any faster than the time left divided into the balance though because it is interest free. £150/mo to credit card

£15,000 car loan. £320 for this each month and it’s due to be cleared in early spring 2024. At 2.95%. I’d just keep paying this and not try and pay it faster because you need cash reserves and your ISA more (pay your long term goals before your creditors). So £0 extra

£400 in an instant access savings account (prob at 0.01%). You do need to slowly build an emergency buffer. What I’d do is set up an automatic £40 transfer every week. If you end up a bit short at the end of the month, take a bit back. But if you don’t miss it, you’re increasing this by £160 every month. So £160/mo

£900 in a help to buy ISA. You want to take advantage of the 25% in FREE MONEY that you can get every year topped up on whatever you put in. Money is tight now, but I’d do the same as the savings account. Put in £25 every week. You can’t get it back. But it will slowly increase.
So £100/mo

That’s £410/mo you can realistically manage most months.

Once the credit card is paid off, increase your weekly savings transfer to £50/week and your ISA to £50/week. But keep in mind, that your savings is now also saving towards when you need a new car around 2030 or so as well as emergencies. Then in 2024 when you have £320/mo extra start investing that in lifetime ISA and/or retirement pensions. You’ll probably be working by then and will be putting more away towards a home deposit.

Personally I would do the following-

Save up £1000 easy access savings before paying off the credit card. Then you have something to fall back on without using it.

From memory I was only able to put £200 into my help to buy isa so I would do this and see it as a bill and create a weekly budget for other expenses. Anything that you manage to save in your budget goes off the credit card each week.

I would then focus on getting rid of your credit card before the bank loan. You can then use the monthly payments for the card to add to your bank loan payments and pay extra off when you can before increasing your easy access savings further.

I've been doing this (had a lot more debt than you) and within a year we now are down to the last one. I wouldn't say you're finances are bad but if you're building more interest on your debts than your savings it's not worth having savings yet

Just to add I treat the easy access savings like a credit card so when I use it e.g for car insurance I then pay it back to the 1000 as soon as I can before focusing on my debts again

On your help to buy ISA.
Starting with the £900, putting in £25/week for 1yr would give you ~£2,500. By then the credit card would be paid off and you’d be putting in £50/week for the next four years, which would bring you to at least ~£14,250 towards a home deposit five years from now.

The key to long term goals is to save early and often. Even small amounts add up.

Look to see if you can open a help to save account, if you claim working tax credit you can open one. For every £1 you save, you get 50p added by the government, you can only save £50 a month but with the bonus that would make £900 in a year.

It’s crazy to have dismally low-interest rate savings when you have a loan - presumably with a shark-like interest rate. If I were you I would put all the savings into slashing the loan, live frugally for a while and really aim for getting that loan gone. Then save.

RippleEffects
Totally agree with setting up an excel spreadsheet with formulae. Open another bank account called 'expenses' and set up a spreadsheet on your phone, work out what needs to go into the 'expenses account' and transfer it by direct debit each month from your main account. Include utilities, council tax, car loan, rent, Christmas and birthday presents, TV licence etc, etc, and set up direct debits from that account to pay them. Check each month that all is within budget still - you'll need to put a small lump sum in to start you off and your formulae will tell you if you're still on track or not. Then you can look at what's left each month for everyday expenses and what you can afford to save.

Try to get to a situation where you pay off your credit card every month and avoid getting into debt again at all costs.

Help to save could be a good option but you only get the bonuses at the end of the 2nd and 4th years. The maximum bonus possible after 4 years is £1200 so consider if it's worth locking £2400 away for four years.

www.gov.uk/get-help-savings-low-income

£400 as a buffer if something goes wrong? Car breaks down? DP loses his job? I'd focus on increasing your buffer and paying of debt first.

There are lots of budgeting videos on youtube (Dave Ramsay being one, a bit evangelical and America focussed, but gives you an idea of the focus you need to get).

5 years to buy a house seems very unrealistic at the present-but it sounds like there is scope for getting a job, increasing savings etc (when all this chaos blows over!).

Sell the car, pay off the debt and start saving money. We have a 7 seater car. It’s a discovery 3, 16 years old, superbly reliable and cost us less than £3k.

If you’ve got £1k less after all your bills and only £1k in savings then you are doing very wrong somewhere.

This thread has been quite motivating for me, and I'm not in any debt!

What are your thoughts @Creation?