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'm curious that fuel is not included in your main houshold bills. Do you mean fuel for the car?

@MLMsuperfan because it's not a regular direct debit maybe?

Yes, it’s fuel for the car. @crustycrab is right, I’ve only included regular direct debits in the monthly household bills.

Well, it is what it is.
Random strangers on the internet 'judging' if they think it is good or bad aren't really important.
I would feel very uncomfortable with a £16000 loan, myself. (I've always saved, then bought cars for £300 - £800 ish.
If I were in your position, I would be wanting to pay that down as quickly as possible - maybe start with using the difference between what you've been managing on and your new income with dh's pay rise.
Are you studying something that is going to lead to a paid job for yourself ? At that point, I would take some advice about starting a pension plan.

If it were me I would do the following.

Sell car to pay off most of loand and buy a cheaper car
Get a part time job and pay into a pension
Start saving at least 200 per month.

Is the credit card on 0%? What interest rate is the loan? What is your DH's salary? When will you finish studying and what is your expected earnings/progression? Whilst I'm not against H2B ISAs, I think your priority needs to be paying down that debt!

Thanks for the advice so far.

The loan is 2.9% interest annually. The credit card is on 0% until September.

With the help to buy isa, we get an extra 25% of what we have saved from the government.

The course I’m doing won’t walk me straight into a job but it’ll be a helping hand. Anything I earn can be spent on clearing debts and some will no doubt cover wrap around childcare. Unfortunately we don’t have family nearby to help on that front.

Have you included the loan payment in your usual direct debit? It is a bill firstly.

You need to prioritize the credit card before the 0% runs out. 9 ÷ 2500 .. approximately 300 a month. Set up a standing order for the amount every month.
As you have the car now & are paying it, put £100 per month for services tax etc.

You now have £900 left.
Unless your children / you need new things,
clothes, NOT WANT, don't buy any.
Budget £100 per week for food fuel & bits.
Anything else put away, half for save for rainy day emergency things & some for you house.

OP I am well aware of how a H2B ISA works, but the priority should be getting an emergency fund built up so when something goes wrong (washing machine breaks etc) you don't have to add to debt to pay for it. Ideally people aim for 3 months of cushion, but I always think £500-£1,000 is a good minimum - covers an emergency car repair or a white good breaking for example. You have a good amount of disposable income each month so I agree with PP that I would be prioritising clearing that credit card before the 0% runs out.

WRT your question about is your financial situation really bad, it's certainly not ideal. No pension provision is a big red flag, and nearly £20k of unsecured debt is a really large amount for a one-income family with 2 children in rented accommodation.

Are you in married quarters or a private rental? I would feel uncomfortable with nearly £20k of debt, but from the money after bills it should be at least semi possible to keep aside a fair amount each month? I'm not saying this happens to everyone or will happen to you of course, but it's a lot less likely to get any of his pension if you do split, I know historically it was often the case as the argument was that you had taken a hit on a career to support theirs etc; I would try and find work even for a few hours a week. I have been the one at home while DH has been away a lot and it has been hard, but I do feel more secure now.

@Grumbley we are in married quarters.

I tend not to think too much about the loan or to tell myself “most people have a car loan” but I know that’s me burying my head in the sand to a degree. With regards to the credit card, I tell myself “we have £1000 saved and we have a few hundred in the current accounts, so that cancels most of the credit card debt out”. It’s much less scary to think of it that way than to think we have nearly £20,000 in debt. That’s a pretty terrifying though!

I’d be terrified with that level of debt let alone having no own income and pension.

No one needs to spend thousands on a car, certainly not when one is away for so much with work and the other not in employment.

It's not ideal, especially the no pension option.

If you put money in savings accounts do you take it back out for things that are £50 here and there. I am rubbish at that so now put £250 per month away in premium bonds. It goes on payday and if I need it it takes 3 days to get back. Long enough for me to question any splurges.
You can save as little as £25 per month with them. That could help build a cushion for you.

I agree with everyone else though. Pay down the credit card before the interest free period ends.
Can you sell anything small? I had a huge clear out last year and made £300. Maybe do something similar and pay half off your card and add half to savings.

I think clearing the credit card will help hugely in how you feel. And getting £1k behind you for emergencies. Then look at if you can overpay your loan. Even an extra £100 a month will bring your term down a bit.

@MessyJessyy no-one is trying to upset you, but it genuinely should be a terrifying thought - it's a hell of a lot of debt. And what would worry me most is that it wasn't all on the car - parts of it were to consolidate other smaller debts. This indicates a real problem managing money/living within your means/saving effectively depending on how these debts came about. There's loads of support though both on MN, MSE and in the real world (e.g. CAP) to help you get out of debt if that's what you decide to do!

To pin your budget down more, go to www.mymoneysteps.org. It's free from National Debtline, who are non-profit making it impartial.

Its quite comprehensive, so grab a bank statement and a cuppa.

It's helpful to prompt you to think about essentials that you forget...e.g. hair cuts, toiletries, budgeting for birthdays/Christmas , car maintenance, even socialising etc

All stuff which is predictable, but not covered by direct debits.

Once you've done that you will have a better idea of where you stand.

Then you can look at what disposable income you have, and make choices on the best use of it.

Good luck! The first step is realising you need to take control of your finances.

I’ll have a look at that... thanks @WishThisWasGin.