Help me get out of debt

[Outwiththedebt]

So we have a very good household income - £7000 after tax.

We are in £20k of debt

We have £3k in the bank (that's every single penny we have between us currently)

The debt has built up over the last 2 years - we moved house which took most of our savings but when we moved in to the new house the tenants hadn't moved out and we ended up in a legal battle with the sellers. The court case was found in our favour and the sellers have to reimburse us but have declared bankruptcy and it's very unlikely we will ever see the money. The debt was accrued because we needed to store our belongings, rent somewhere to live (a hotel initially and then an air b&b) and then the tenants had done damage to the property when forced to move out and we had to put it right to make the house liveable (they did significant damage to the kitchen and bathrooms).

So anyway, we're now moved in and things are liveable but we're in £20k of debt and unlikely to see any recompense. So new year, new budget! Any help in how we can cut back or make savings would be really helpful.

So income £6998
Outgoings:

Mortgage: £1995
Childcare: £650
Food/ supermarket spends £600
Pets £150 (food and insurances for 1 dog and 2 cats)
Car £250 (petrol, insurance, tax, MOT - we own the car outright)
Commuting £80
Broadband £35
Gas and electric £319
Water £53
Home insurance (contents and building) £48
Mobile phones £31
Netflix £24
Prime £8
Swimming lessons £68 (2 kids, council pool)
Gymnastics £24
Music lessons £60
Haircuts (DH and DS) £25
Window cleaner £12
TV licence £13
Trade union subs £15
Professional registration £15
Student loan £68
School lunch £45
Life & critical illness insurance £95
Lottery £10
Council tax £200

Total £4893

Minimum payments on debt= £448

Total £5341

This leaves £1657

This is for day to day spends, Christmas, birthdays, school trips, clothes, household repairs, school uniform, shoes, days out, holidays etc.

I am very, very aware that our "remaining" spends are similar to some people's earnings - I am NOT pleasing poverty in the slightest, but we are in debt and we do need to clear it asap.

What I do want is a realistic plan as to what is reasonable to budget for Christmas, birthdays, other household expenses etc and what we can therefore pay off the debt.

What I don't want is to attribute all of that £1600 to payment of debt and then find us getting in to debt again to pay for school uniform etc.

As you can probably imagine it's been a really stressful time and I'm only just feeling we can get a grip on things now.

2 adults working full time, 2 children in primary school. No family support.

TIA.

They are both paid annually, I just account for them monthly to make sure we have the money in the account when they are due.

It is very unusual for the costs not to be covered by insurance, have your home insurance said why they won’t cover and have you taken it further?

Because they're arseholes.

Long story short, insurance blames our solicitor, our solicitor blames vendor solicitor, vendor blames our solicitor etc etc. it's not yet resolved but will take a while. In the meantime we're the ones out of pocket. Apparently failed vacant possession isn't standard home insurance business when it involves people. Much more cut and dry if it's just possessions.

I can see that you're continuing to follow / fight this - even if nothing else, the insurers surely should pay for the damage caused??

As for money saving / making not just in this instance, but going through life... the best way to save is to not spend and to get the best deals / discounts on necessities. Use the shopping apps, get discounted vouchers etc through your employee benefits schemes. Spend time on MoneySavingExpert for advice & ideas. Not only to resolve your current situation, but also to plan for your future / retirement. Saving money and changing habits now will give your more choices & options later on.

Pay the minimum on the cards, but but the maximum you can short-term into savings or premium bonds. By using all the ideas suggested on here, you can save hundreds a month going forward (with tax / childcare voucher suggestions even more). Future you will thank you when you can choose to retire / semi-retire or change jobs at 57 rather than 67.

I think it’s very sensible taking this approach as debt has the potential to snow ball.

It really is setting a budget that’s realistic for you. Work out what the likely costs are for each category. Some
people will buy designer shoes for their kids, others supermarket brands. You need to work out where you are on the scale for each category and budget accordingly.

Do you have a written budget covering all categories? This might help you get more clarity. I use a budgeting tool called YNAB (free trial available online).
I’ve probably used it for almost 10 years and it’s changed my finances massively.

My own budget after essential house, car, groceries and other essential bills has the following categories:

Food and drinks out 300 pm
Clothes 100 pm
Hair/ Beauty 100 pm
Gifts 150 pm
Holidays 500 pm
Children expenses - recently gone to zero since now working
Parking/ Taxi 20 pm
Other 50 pm

For me the above comes to around 1200 a month, but if necessary for a short period of time I could cut it to almost zero.

For essential bills I include things like Car maintenance, House maintenance, Dentist, Optician as well as all of the regular bills.

Only you can decide how much needs to go in each category but getting a written budget with all expenses listed in it will give you the clarity you need to see where you are and how long it will take to repay the debt.

Hope this helps.

Again, fighting it because we didn't have landlord insurances they say they don't cover it...

We just got it fixed as it was cheaper than continuing to rent air b&bs.

We had a critical illness policy pay out a few years ago for DH. Absolute godsend and no hassle

The home insurance does seem very expensive. Do you use a price comparison website at the time of renewal to see if you can get the price down?

Thats good to hear, do you have the name of the company you used and were good?

Yes, I follow money saving expert and use the 3 step approach they recommend and a cash back site.

How awful OP…not a scenario I’d ever considered but one to be mindful of (I’m hoping to downsize this year). In general I’d recommend looking at Dave Ramsey Baby Steps, or Rebel Finance School…you’ll find loads online about them both. And both will show you idea around sinking funds for Christmas, birthdays, etc (although both will advise clearing your debt first).

Specific to your budget I’d can everything non essential until you pay off the debt.

Food/ supermarket spends £600 - for 2 adults/2DCs you could definitely reduce this
Broadband £35 - I’d shop around with this as expensive in comparison
Mobile phones £31 - if this is contracts (not phones then you can definitely get cheaper, DS and I are less than £15pm for both our phones)
Netflix £24 - cancel
Prime £8 - cancel
Window cleaner £12 - cancel
Trade union subs £15 - personally I’d cancel as know from experience TU are worthless
School lunch £45 - can you make DCs lunch to take in
Lottery £10 - cancel

It was Legal and General.
We took out a policy 20+ years ago to pay off the mortgage, so it would have ended when the mortgage term did. We had the choice for it to reduce with the mortgage amount or just stay at the amount the mortgage began at; we chose the latter even though it was more expensive as DH has very little pension.
Interestingly what it paid out on it wouldn’t pay out on if we’d taken it out now; the operation DH had is more commonplace and less ‘critical’ now (thankfully) but it was based on the terms and conditions from when we took it out and it paid out without quibble which we were very grateful for.

Sorry to derail thread OP; I suppose my point is don’t cancel this if you don’t have to because you never know when you might need it and even if you start something up again the cover might change.

So sorry to hear you got into this position through no fault of your own. If the owners declared themselves bankrups could you pursue the tenants for the damagethey did to the property? The property was technically yours while they were in occupation once contracts were exchanged. Even if they have no money you could take some pleasure in ruining their credit score for the next 6 years.

You say that DH is just over the limit for you to recieve free childcare. Given the cliff edges for tax would it be possible for him to slightly reduce his hours or make salary sacrifice into a pension? Then that money could be helping towards paying your debt rather than going into the grubby hands of the tax man.

Is there any way you or DH could earn some money cash in hand which you can put towards your food shop or petrol? Car boots, Ebay, private tutoring etc?

Op, you sound very sensible and I have no doubt you’ll be out of the debt quickly. You might want to use MSE budget brain to check you’ve included everything above.

I’d then aim to put £1k towards the debt a month with £600 for the rest of your spending. I’d assume no holiday this year but other than that it should all be doable fairly easily.

Thanks everyone, I've taken note of all the advice and started looking at the sites suggested.

The plan so far;

Doing a freezer food until Feb challenge - basically empty the freezer of food before buying more.
Cancel prime and lottery (£18)
Reduce the supermarket shop by making cheaper meals
Reduce Netflix subscription
Reduce window cleaner and haircut frequency

Aim of above - save £100 per month

I've looked at many pets and the dog & 2 cats won't be any cheaper with them.

Use the 2 free months to pay down credit card 1.
Credit card 1 will be the first point of effort - aim to be paid in full by end of 0% in April - that's 3 pay days away.

Budget:
Dentist (we have an NHS one thankfully) £10
Childrens clothes, shoes, uniform, school supplies etc £100 (unfortunately both are in need of new clothes and we have no one for hand me downs, I do use vinted though)
Discretionary spends (coffee, lunch, parking, make up, hair cuts for me, clothes &shoes for adults, hair products, skincare etc) £300
Christmas and birthdays £100
Savings £100

Total: £610

Any discretionary spends left at the end of the month will go in to savings. My thoughts being that having savings is always a good idea and as we aren't accruing interest on the debt we can always us the savings to pay off a credit card at a later date.

Credit card 1 ends in April - 2 months council tax, plus 2 months of minimum payments and the "extra" we have available= £2624. Which almost pays off the full amount.

Credit card 2 ends in January.

Jan - April, minimum payments only £244 (total)
From April - £1040 plus the £61 minimum plus student loan repayment which ends in April plus the £58 min payment no longer going on card 1= £1227 per month. Paid off in full by September.

That'll be £8935 paid off by September.

October onwards, I'll split the £1127 across 2 remaining cards, which along with their minimum payments will be around £600 per card. I'll reduce that down in November and December to £300 to afford Christmas and birthdays - aiming of course to have more than enough in the Christmas 'pot' anyway. In Jan any "extra" leftover can go off the highest card as a one off extra payment.

Should be paid off 10 months later, July 2027.

Feels like a life time away!

But feels good to have a plan, even if it might change once I've reviewed all the sources provided in this thread.