Debt repayment / consolidation

[Reluctantadult]

Hi all, name changed for this. Dh and I are up to £27k of debt, and I'm hoping for tips on what to do with it all. It's from 2 loans for cars, one £5k with 2yrs to go, one £9k with 5yrs. We've got £7k left on a cm from when we bought our first house, which is on 10% interest for another 20yrs. We owe my mum £5k which we can gradually repay. We be about £700 on credit card. We could do with doing about £5k work to the house, which we don't have. Our major outgoings are £500 on debt, £600 childcare (free hrs next Sept), £500 mortgage. We could put an additional £10k on the mortgage, so I'm thinking of doing this, paying off the original house loan £7k and then having £3k to either get the roof done or pay some of the other debts. Is there anything I haven't considered about putting debts into the mortgage? Is there a better way?

Can I ask how much money do people tend to aim to have stashed away for a rainy day?

6 months of living expenses would be a reasonable amount.

I've found a car the same as the one dh wants, skoda octavia estate, for £3600 and they take credit card. But DH isn't keen because its 2011. I've made him promise to at least look at it online.

If we put this one on the card at 0% and consolidated the rest, I think we could clear our debts in 3yrs. Maybe 4yrs if we are setting savings aside at the same time.

If we stick with the more expensive car then its 8yrs but would aim to do it in 6 or 7yrs by overpaying when we are finished paying for childcare.

I was in about 5k debt a number of years ago, stupidly i had buried my head in the sand as I didn't know how to deal with it, all the time it was gaining lots and lots of interest. One day I just realised I had to look at it and see exactly how much debt there was, I got it all transferred over to a 0% credit card and just paid off the maximum I could afford each month. So if I thought I could pay £300 one month, I pushed it to £350. It took about 18 months or so to pay it off and I hated seeing all my spare cash going to pay my old debts, but I just stuck with it. No crazy spends on holidays or cars during that time as I knew it would only prolong the amount of time it would take to pay it off.

It was such a good feeling to eventually get rid of the debt and by then I was used to using so much money a month to pay off my debt that I just continued to put that money away, but into savings this time. I now have around 10k in savings, and once we move house (hopefully next year) I hope to use around 3 or 4k to update my car.

I was made redundant a couple of years ago so I know how quickly things can change. It will take time but you will feel so much less stressed if you can get this sorted out and start building up savings so you can afford a nice car or a nice holiday, because now you can't afford it.

Fair enough if the car is genuinely unfixable. I do think you need to accept though that past choices mean that you cannot, RIGHT NOW, afford the car that would be ideal, and go from there. It's the dangerous thinking of credit and you're just on the tipping point of things getting much worse if you take on £9K more of debt.

Can I ask how much money do people tend to aim to have stashed away for a rainy day?

I think it helps to think differently.

What is a "rainy day"? Are you saving for boiler repairs, needing a new fridge freezer or washing machine unexpectedly, for having cash on hand to take advantage of a bargain by paying up front? Or are you saving for job loss etc.?

Name what 'known unknowns' could occur and start with that as a figure - say £1,000?

Then pay off all your debt as soon as you can.

Then start saving 3-6 months' worth of expenses in case of job loss.

At the same time you need to be actively saving towards bigger things you know you need - house repairs, new cars etc.

You will find your monthly disposable income is much, much less than you think it is and you will feel poorer...

...but you will grow much richer and have much less stress when you can just deal with the problem of a car that's on its last legs without juggling hundreds of scenarios of different financing options.

DH isn't keen because its 2011

Tell him that unfortunately, because back in 2011, when this was a NEW car, you were spending money you didn't have on things you couldn't quite afford, he cannot now afford a newer model.

Seriously - give him the budget and you look for a car within that budget.

You cannot be happy to be in debt for an extra 3-4 years? Is a slightly newer car worth that?

If you pay off ALL your debt within 3-4 years, instead of 6-7, then you can put your debt payments towards a brand spanking NEW car so much sooner.

Your kids are small and no doubt your family car gets a bit trashed by biscuit crumbs and whatever? Have a less flash car now, in the biscuit and juice phase, and get a nicer one when they're more civilised!

More difficult discussions this evening!!! I might suggest we use a 'speaking spoon' this time 😖

Also, perhaps think of it from your Mum's POV.

You have £5K of her cash.

You are about to borrow twice as much for a 'nice' car.

She will know that the repayments for that commercial loan mean she is much less likely to see her money for a long time.

I'd be annoyed if I were her. I would rather lend you more and have you promise to pay it back, formally with a loan agreement, than see you take on £9K more of debt for a depreciating asset that meant I was definitely bottom of the pile for repayment.

I'm not saying ask your mum for more money if that is not appropriate. I am saying look at your priorities, and how they will come across.

Sorry if ive missed any points, personally I would get a consolidation loan so you are paying less each month.
Then use the extra and make sure you are putting this in savings each month, plus for now I probably would avoid putting into children's ISAs and concentrate on this in the future when you do have more disposable.
Regarding car I understand point about paying more for one that will last longer, we are currently under same dilemma. My current car is 2008 and haven't had anything major done for absolutely years but next MOT from the advisories is looking to be around £700-£800! Eek. We are looking at cars around £9k mark and basically not planning to change until it breaks.
We always save £200 a month no matter what. My absolute minimum in our savings is around £500 but in all honesty id like to see this above £1k mark. My idea is for it to be £2k at all times. (I think it's recommended to have at least 3 months wages in savings at one time)
Anyway this has really helped us out and for example I pay car insurance, car tax annually so save spending out so much each month so we've got more disposable for whatever else.
Not having to pay the childcare is a great one... My DD has just got her free hours so we've been putting that amount in savings as we are so used to not having it. Same with if any bills etc decrease in price (months of no council tax etc) I just stick it straight in savings.

One last way to think about the car (and then I'm back to my work which I'm avoiding )

£9,000 car kept over 8 years = £1,125 per year
£4,000 car kept over 3 years = £1,333 per year

£208 per year more for the cheaper car in the short term, so £624 over 3 years.

BUT - you could finance the cheaper car at 0% and you will need to pay loan interest on the more expensive car. How much will interest cost you in just the first 3 years?

If your DH's arguments are around 'cost effective' solutions then he has to listen.

Then he's going to say, but the cheaper car is more likely to need expensive work doing on it during the 3 years.

But you will be in a much better position to have saved a buffer towards that potential cost if you're not financing a whopping big loan, or to decide to change the car again at that point when your outgoings are lower etc.

@nosquirrels thank you for all your input

@coconutbug that's really interesting so thanks for sharing. I think I could live with that scenario. I'd still rather have £21k of debt to tackle than £27.

Yes definitely. I like the way nosquirrels have written it. Effectively the same cost yearly.
The thing with cars you can get a really good reliable car that last ages but might be slightly older and not need much work. Sometimes it's just luck of the draw! I would definitely minimise that cost if you can. We are only looking at 9k cars because we can, originally it was cheaper but we had some money tied up with house project that didn't get used.

It's not a done deal yet, but I'm tentatively hoping dh might agree to getting the car fixed. My dad (who lives in nz) think he knows what the electrical problem is as he had the exact same thing and they also couldn't find the fault until it went to a specialist... then we can fix car 1 on credit card and keep it a couple of yrs, clear the loan for car 2 and get out of childcare, overpay to clear house loan or consider putting it on the mortgage to reduce the interest, save, and look to upgrade car 1 in a couple of yrs. Please dh see sense!!!! Please garage say that is the problem!!!

Fingers crossed Reluctant!

@Reluctantadult You have to be strong as you are being. It isn't reasonable for him to say take on that level of debt given that you are in a mess anyway but are working to put a good plan together to clear it

I really feel for you op. We have had similar issues with debt and cars. What we did was buy an old focus estate for £600 and kept it for 2 years until we could afford a reliable car. Yes it was embarrassing but it's much cheaper to buy a real banger until you can afford to buy something that will last years. Dont buy a mid range car it's a waste of money. It seems like you will be in a better position once you stop paying child care so wait until then. We recently brought a new car (18 plate) and its has 4 years manufacturing guarantee which such a nice comfort. Just wait it out a year or two.

Got my fingers crossed for you!

I think unless you need a solid workhorse car for business driving (in which case you will probably be expensed or get a car allowance) then buying a car on credit when you are not in a good position financially is bonkers.

I have only ever had old bangers yes you pay more in servicing but IMO that's better than paying £300-£400 a month for something that will only depreciate. I don't really care what it looks like so long as it gets me from A to B ok, I can't afford to.

Is your existing car (the one that hasn't broken) a large estate? If so, then if you and DH just make sure the one with the DC and dog has the large car, you can manage with a small runaround for your 2nd car.

So I spent all afternoon in A&E with dd, who is fine thank goodness. Came home to find that dh has cancelled the new car and the loan!!!! I'm very relieved. Especially good that he was the one who did it. We are going to speak to our garage on Monday and see what it will take to keep our car on the road for a year or 2 and take things from there. Sincere thanks for all the advice on this thread. Obviously I was panicking or I wouldn't have started the thread, but the advice gave me the confidence to keep pushing. I'm not the sort to roll over for a quiet life by any means, but DH had a valid different opinion and we know plenty of people in that boat, so some difficult conversations have been had.

Hope your DD is OK Reluctant! Very glad your DH has seen the light - fingers crossed on the car.

Good plan. You will both feel so much better for it. Then you can get a lovely new car when things are settled without that extra pressure.

Hope your DD is okay and it isn’t too pricey to sort out your car!