AIBU to think that we can't sort this ourselves without professional help - desperate situation

[phillers]

Morning,

In a terrible situation. Years and years of poor communication and financial mismanagement have led us here. I am broken, ashamed and not sure if this is something that we can ever get out of. Terrified of losing our home

please be kind

Household Information[/b]
Number of adults in household........... 2
Number of children in household......... 2
Number of cars owned.................... 2[b]

Monthly Income Details[/b]
Monthly income after tax................ 4355
Partners monthly income after tax....... 2511
Benefits................................ 0
Other income............................ 250[b]
Total monthly income.................... 7116[/b][b]

Monthly Expense Details[/b]
Mortgage................................ 801
Secured/HP loan repayments.............. 386
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 139
Electricity............................. 98
Gas..................................... 112
Oil..................................... 0
Water rates............................. 35
Telephone (land line)................... 0
Mobile phone............................ 67
TV Licence.............................. 13
Satellite/Cable TV...................... 36
Internet Services....................... 21
Groceries etc. ......................... 600
Clothing................................ 30
Petrol/diesel........................... 220
Road tax................................ 22
Car Insurance........................... 64
Car maintenance (including MOT)......... 30
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 120
Medical (prescriptions, dentist etc).... 9
Pet insurance/vet bills................. 28
Buildings insurance..................... 22
Contents insurance...................... 17
Life assurance ......................... 49
Other insurance......................... 9
Presents (birthday, christmas etc)...... 100
Haircuts................................ 20
Entertainment........................... 150
Holiday................................. 0
Emergency fund.......................... 100[b]
Total monthly expenses.................. 3298[/b]
[b]

Assets[/b]
Cash.................................... 0
House value (Gross)..................... 320000
Shares and bonds........................ 0
Car(s).................................. 14000
Other assets............................ 0[b]
Total Assets............................ 334000[/b]
[b]

Secured & HP Debts[/b]
Description....................Debt......Monthly...APR
Mortgage...................... 140098...(801)......4.11
Hire Purchase (HP) debt ...... 17000....(386)......0[b]
Total secured & HP debts...... 157098....-.........- [/b]

[b]Unsecured Debts[/b]
Description....................Debt......Monthly...APR
updraft loan...................21000.....360.......16.9
updraft loan 2.................8000......210.......18.9
Updraft loan 3.................6500......165.......18.9
overdraft......................2500......80........42
Creation Credit card...........7100......192.......21
very...........................700.......48........50
halifax cc.....................2400......24........0
fluid..........................3600......170.......39
LLoyds.........................3890......132.......8
HSBC loan......................7309......210.......7.9
Lloyds.........................10500.....269.......29
barclaycard platinum...........12600.....258.......4.9
barclaycard....................4960......109.......4.9
natwest........................2000......20........0[b]
Total unsecured debts..........93059.....2247......- [/b]

[b]
Monthly Budget Summary[/b]
Total monthly income.................... 7,116
Expenses (including HP & secured debts). 3,298
Available for debt repayments........... 3,818
Monthly UNsecured debt repayments....... 2,247[b]
Amount left after debt repayments....... 1,571[/b]

Cards are all cut up. No possibility of us moving to 0% right now as we have too much debt and are seen as high risk

Partner thinks that it's fixable if we budget properly and start on the highest interest debt. I wonder if we need professional help

AIBU to think that this is not fixable by simple budgeting

OP: Have you read and absorbed the excellent advice and repayment plan as provided by StatisticallyChallenged?

They have done a lot of working out for you, there.

And with a few of the budget cutting suggestions by other PP which would ADD to the £24k-plus you pay off in Year One you will have this debt cleared relatively quickly and simply. As the debt will decrease quicker each year because of the interest that can be liberated to pay of capital.

Do you have the discipline and organisational skills to put it into action? Nothing complicated but you would need to monitor between you that you are onto it!

I don't agree.

That hideous amount of debt creeps up on you. And then it becomes enticing to do just another bit more to pay to escape it all. Then it's even more stressful. Then the car breaks/boiler breaks/overdraft kicks in/Christmas happens.

And then one day they will sit down and think "We've spent £100,000 on things we don't even own." They'd need to earn nearly twice that to be able to buy it due to the high tax.

If they sit and take a hard look in the mirror it would be impossible to get into that situation again. And once those debts start rolling off they will have disposable income again - that they'll use to pay off more debts. And eventually they'll be able to breathe a little easier. Maybe even realise what they need to do to prepare for the future.

I hope one of the new spends they will be able to make will be on marriage counselling. I feel this has been covering up some grief/loss/heartbreak.

Could you sell some of the things you've been spending on?

Voxi sim is £15 a month for unlimited calls, text, social media, and video, as well as 20GB of data. You can hotspot the video data as well.

You're on the right track if you're writing it all down and making an effort to try and sort it all out.

Well done Op. You've got a financial problem, you've acknowledged it, you're focusing on your options, you've made some terrible choices in the past by the sounds of it, time to keep making better ones.

Its so hard to admit to financial issues / mismanagement, now that you have just remember you have choices, all choices have consequences* *

If you want to, you could make some great choices over the coming months, some will be hard but the benefit will be an unbelievably amazing life for the whole family.

You could, get yourself to a place of £7k in and £3k out each month

Best wishes and well done for facing into it

I think if I were you and had a spare £1500 to use towards the unsecured debt, I would concentrate on paying off all the littlest debts first, so pay off the Very debt and shift that £48 a month on to one of the higher debts ( so the Fluid one because the interest rate is high) , pay off the other £800 off the overdraft, then next month pay off the overdraft, thats another £80 to chuck at the Fluid debt each month, once the fluid debt, overdraft and Very is cleared then you have an extra £300 a month to chuck at another debt, you keep doing this until you are paying off a lot more off the bigger debts and you will soon be debt free, well soon as in a few years.

Also set up a vinted account and sell everything that you don't wear, doesn't fit family members etc and put that money in a safe place for school shoes etc

In my opinion the only way to pay off the debt and stay out of debt is to do it the hard way
Don't consolidate and absolutely don't add it to your mortgage
Buckle down, face up to it and completely change your spending
Allocate a realistic budget for all areas. Actually put money into different pots for Xmas, entertainment etc actually move the money
Start paying off the highest interest debt and do that in turn. Throw as much as you can at the debt. Sell anything you don't need or use, change your mindset
In five years time your debts could be fully cleared and you could be saving a fabulous amount each month
With your monthly income and your mortgage etc you could be living a fantastic debt free life with plenty of cash in the bank and having lots of fun without the debt

If you use your leftover 1500 each month to throw at the smaller debts, your credit rating might get better as you'd be less maxed out, and you might be able to move some to a 0% in six months or so.

If I was in your position, I would use that spare money after everything paid out, and aim to clear the cc/debt with the lowest amount outstanding. So clear off very, then the cc around £2k etc. Each month working towards paying off a cc fully. Once it's paid off, cancel it.

The alternative, which probably is worse case scenario... is to see if you can borrow the full amount of debt as a re-mortgage. Pay off all the debts. Then put the left over money each month into paying chunks off your mortgage. Or save it until the 4 years fixed rate is up, pay a big chuck off and maybe reduce the term of your mortgage so you pay more a month mortgage, but area clearing the extra debt on mortgage.

You have a high income and enough to pay the debts down starting with the highest interest card with the most you can afford to throw and then in order of interest rate
Go through every DD and see if you can do without and negotiate lower rates for essentials such as broadband and mobiles
CAB are brilliant for advice
They can negotiate with creditors to freeze interest
I certainly wouldn't pay for debt advice!
Your credit rating will be screwed for a while but needs must
Purely my opinion but banks shouldn't be able to give multiple cards

i use this app https://www.debtpayoffplanner.com/ , it helps to organise your debts in to one place,
it also works out how much you should be paying each month, to clear the debt in the fastest amount of time.
its american but you can change the currency to £

other than that try to minimise your spending as much as possible, cheaper alternatives and free options when you can,

for the grocery shopping i use apps like these
https://www.toogoodtogo.com/en-gb
you can get alot of food for a heavily discounted price because its close to use by date
sometimes the food is good for a few days,
some items like meat and bread you can freeze it
its a surprise what you get but usually there is some nice bits in there,
i have gotten two grocery bags full of shopping for just under £4 before
restaurants are usually generous with how much they give away at the end of the day because otherwise it goes in the bin, so you can dinner for under £5

https://olioapp.com/en/
olio connects you with people locally, who give away free food and also non food items , could be that they bought some food but changed their mind and list in on the app, or they are going on holiday and dont want the food to go to waste
olio volunteers also get food from supermarkets like tesco that are close to the use by date , but you can freeze stuff and it will last a month

I would also write all the debts on a white board or similar and wipe them off as you pay them off so you can keep a running tally of what you owe.

Do you use the credit cards for day to day spending?
If so don't forget these when working out what goes where.

Get a pad or an app and record everything you buy. It will help you work out where you overspend.

While it's not good, the advantage of wasting money is that you have plenty of places to make positive changes.

I can see why people have suggested adding to the mortgage as in interest terms it makes sense but I wouldn't entertain this until you get on top of things and properly change your habits. Otherwise it will just rack up again and then your home is in danger

Use your statements and till reciepts to find out what a real month's spending is. You might get some nasty shocks.

@phillers its commendable that you at least have a clear understanding of your finances. Very often a family with your spending habits have lost visibility and control, or they become so scared, they bury their head in the sand and hope it will go away. You've realised the problem and you do have motivation to get things under control again.

Your finances are symptomatic of 13 years of capitalist government, everything is there tempting you to acquire an affluent lifestyle, cars, trinkets, holidays, all the trimmings.

Can you do a course on good financial habits, to re-educate yourselves on how to maintain a good lifestyle without reaching for the credit cards. Be mindful about every penny that leaves your account, try to stay exposed on a daily basis to the financial decisions you make - companies are all about "one-click" purchasing eg Amazon, instant loans like Klarna, they are all about hiding the reality, don't get sucked into any of it anymore.

My 4 year old car was on a PCP and the dealership spent weeks pestering me to trade in my vehicle (ultra low mileage due to COVID lockdowns, it had only done 20K miles). I was so tempted, nice new sparkly car, but I eventually said no. The £350 / month is in my account each month now, not in theirs! I'm really relieved I stood firm. These habits are formed over years, move yourself into a mental zone where buying stuff is less important than having peace of mind and security. You can do this!

My DH said that its only when the tide goes out that you will see who is swimming with no trunks x

Exactly this. It's so simple.

All this nonsense about paying off the smallest debts and then you will have more to pay off the next one is utterly ridiculous.

It's all about the interest rates and you have to attack the highest rate debts first or else each month you are throwing away money on interest.

I think paying off the smallest debts first is beneficial to some people due to the mental boost and motivation that clearing each debt gives them to keep going.

I agree with you though, for me attacking the highest rates first is the most financially sensible way.

Well for the OP, it's academic as some of the smallest debts also have the highest interest rate.

But if you have loans, multiple credit cards with several £k on and then half a dozen catalogue type debts with a few hundred each on, even if the interest rate isn't high, it simplifies the admin, as well as a feeling of 'getting somewhere' to just pay them all off.

For the OP, I would first pay off Very and the overdraft (and stay out of overdraft). Then tackle fluid, then Lloyds. If the OP does pay off £4k pm, the first three will be gone by the end of the year.

I'd also keep an eye out for existing customer balance transfer offers, to see if I could transfer any of the Lloyds debt, otherwise, just keep throwing money at it and by the end of next year, that and the Creation card could be gone and then on with overpaying the loans, which I note have no settlement fees (googling suggests they're a consolidation loan company, which could be a strong indicator that the OP has gone through several rounds of 'paying off' credit cards before) so a lot of the debt could be interest and possibly late payment charges run up through disorganisation.

I agree with @Giles81 - Im not convinced your current financial summary is 100% accurate & it appears to have a reasonably high degree of optimism bias as it appears you're about £4K out on your plan!

Your plan shows you currently have an overdraft of £2500 so you don't have a surplus of £1500 each month after all your outgoings, if you did you wouldn't be £2500 overdrawn.

You need to reduce that recurringly which only brings you down to break even each month. I know that's in your unsecured outgoings section so I don't want to double count it, but you can't be both £2500 overdrawn & have a spare £1500 each month.

Once you've reduced your overdraft to zero, you've then got to find recurring savings each month of £1500 which means you've actually got to reduce your current spending recurrently by £4000 each month for you generate a monthly surplus of £1500.

Personally, whilst there is a lot of sound advice, I think it would be a worthwhile investment to pay for an accountant who specialises in debt management to do a years review of your spending........ although not an accountant, I was involved the operational side of financial recovery plans for organisations for years, ie putting the recovery plan into action.

The principals are similar, as are the behaviours & it's was always an eye opening when the forensic debt accountant team (as they were called) went through the spending.

I think you'll also need support to maintain behaviour changes as it will be a huge lifestyle change.

Lastly, I don't want to be negative & I'm offering this with the best of intentions but if you go over your overdraft limit you appear to be at high risk of everything collapsing. Totally agree that the snowball principle works very well to pay off debt but it also works the other way round. In my experience of organisations in financial trouble, those with lots of debt, loans, overdrafts etc, it was often the exceeding the overdraft that triggered the debt house of card collapsing. Banks treat this not only as a sign of financial distress but also poor financial control.

I really hope you sort this successfully but strongly advise you seek support now.

Agreed. You need to get on to Dave Ramsey. The snowball method works far better than messing about with which has the biggest interest rates, due to basic psychology. Once you pay the smallest off you get a sense of momentum. You then tackle the next smallest and so on. He calls cutting up the cards a ‘plasectomy’….

You might find the anti-Biden tone a bit off putting but the debt repayment method works.

Snowballing starting with the smallest debt (unless you have a few very small debts that you can get out of the way to simplify admin) is utterly stupid and will lead to paying thousands in interest unnecessarily. I find it hard to believe that someone who positions themselves as a 'debt guru' would give such ridiculous advice.

In what world would you bother to set yourself up with a 0% balance transfer and then throw it away by overpaying it because you owe less than the other loan/card that's costing you 20/30/40% interest?

Paying debts off in order from highest to lowest interest rate is what gets people out of debts fastest and at least cost.

Human psychology is massive though - the Ramsey methods works because initial small successes are motivational. Mathematically the avalanche works better, but fewer stick to it.

He’s a debt guru who has got millions of people out of debt. It works because it is built on an understanding of how people behave. If you borrow on 0 percent interest and congratulate yourself for earning a bit more in savings interest rather than paying it off, you overspend and end up in more debt , or at least carry round the burden of the debt, niggling at you all the time Been there, done that.

To properly sort your finances out after a mess you need to change your ways properly - then you follow through and shift the debt.

Many people find Ramsey useful. That's not the same thing as efficient. There is a place for both approaches.

But the other thing to remember is that Ramsey is in a very different legal jurisdiction - the difference in the implications of defaulting on different types of debt can be significant.

For example, if you default on a mortgage in the US you hand back the keys to the house and you're all square. Do that in the UK and if the lender can't sell the house for more than the debt, you remain liable for the difference.

I wouldn’t take advice from anyone using the word “overpaying” for paying off money you owe.