Tackling debts - which way is best?

[Screenburn]

Long-time lurker, occasional poster seeking advice.

In my youth I was reckless with spending and accrued a number of debts, all of which I somehow managed to get out of with the help of unexpected one-off windfalls and the odd bit of stern but kind help from family members. As I’ve got older I’ve become more sensible but when going through a tough patch mentally a couple of years ago I accrued a few debts. I’m now in the situation where I have about £5k on a couple of credit cards (with high interest rates ) and an overdraft.

I was honest with DH about this (accrued from silly things like clothes, gifts for others, meals and drinks out etc - not for anything joint) and he has been completely understanding and has covered a number of my contributions to the household so that I can live normally - if frugally - whilst paying off the debt slowly. I’m confident that my mindset has changed completely and I would be very unlikely to get into the same situation again now.

We have been discussing TTC recently (I’m 33) and whilst we’re keen for it to happen relatively soon, I am concerned about doing so when I still have outstanding debt; our personal circumstances mean that neither of us could be a SAHP full-time and so I’d want a cushion for childcare before baby was born.

I am making efforts to increase the money coming in to the household, but I’ve also been looking at various approaches to tackling debt and I’ve seen advocates for paying off the highest-interest debt first, and others for the ‘snowball’ method which apparently helps keep debtors motivated. I think the prospect of TTC will probably be motivation enough in itself for me so I’m inclined to go with the former, but does anybody here have any experience with what worked best for them?

I'm a big fan of Dave Ramsey and he talks a lot about the snowball and avalanche methods. I also looked into FIRE where people are living very frugally and saving large portions of their income. I have recently paid off £7k of debt whilst raising a child (shes only 20 months) so its very doable!

What do you mean he’s covering your debts while you live frugally?

You’re married. Household income is just that. I’d be quite concerned over his attitude if you’re planning on having a child with him.

OP - I'd suggest you consolidate the credit card debt to a lower interest personal loan with your own bank. You're likely to get around 9.5% currently if you have regular income going into the account. If your own back isn't helpful (they should be during this virus) try Nationwide or Credit Union.

Another fan of Dave Ramsey here! Since I started listening to him I've completely changed my attitude to money, it's very motivating to hear other people's stories and them doing their debt free screams, and we've managed to save an extra £500 approx per month that we were always wondering what happened to. On paper we should have had plenty of disposable income but half way through payday we had nothing left.

I don't have a strong opinion on whether to do the debt snowball or the highest rate of interest to lowest, because all our debt is on one credit card, but maybe listing them all out and having the figures as a visual would be a good start?

Then you could list all your income and outgoings, figure out a weekly budget of what you will spend and then anything over that is put aside until the end of the month when you can then use it to pay one of the debts (obviously making sure that all other debts you are making your minimum payments)

Then you can mark that amount off your list and see the figures going down.

That's what we've been doing and each month logging into my credit card app to make a payment of a few hundred pounds instead of the minimum £25 I used to pay feels so good. I've now got a good approximate date I should officially be out of debt and can do my own mini debt free scream.

Good luck with everything, whichever way you go about it

@Screenburn don't panic to much as £5000 is manageable.
Cut your credit cards up and cancel your overdrafts and then speak to your bank about a loan .
I was £20000 in debt but it's coming down. One more year and I should be ok hopefully to get a mortgage.
On another note I totally agree with @Angellegna

Firstly how much can you afford each month in repayments as this will determine the amount of time it will take to pay off.

For me it is really important to have a monthly and annual budget to follow and written down or on a spreadsheet.

I think the option for me depends on how long it would take to repay. So a longer repayment period I'd get rid of the high interest rates then onto the lower ones and vice versa.

Would you consider a loan to pay of all debt? This way it would be fixed repayment not continuously accruing interest on various amounts which would Be almost impossible (for me anyway) to calculate as interest is calculated daily. I don't know if this is a possible option? There may be drawbacks but something to consider if you want a more planned solution. Ie a fixe amount every months for a set number of months. Say £500/month in ten months or 250/month in 20 (ball park and not including interest).

I am no expert but I have changed my relationship completely with money by budgeting (not mean or frugal just apportioning up money). I give myself £200 spending money a month including fuel and transfer it to a different account. I also wrote down everything I wanted to buy this year over £100 eg holiday, clothes,new phone, clothes allowance, Hoover, dh birthday, car service, tyres, Christmas, so not tempted to put these these on card and end up back a square one (one year drove over two nails in a week cost £250)

As a result I paid off my Debts and have more disposable income and saving. Although I obsessed with my spread sheet. I can't believe I never used to do it it. I used to spend what I had and if I didn't have it still spent it! Good luck with everything.

Can you transfer any of the credit card debt to a card that charges 0% interest? If you reduce the interest charged, a more of the money you pay goes towards the debt. Also decide how much you can afford to pay off each month and stick to that amount. It makes your debt go down much much faster than just paying the minimum payment. Like years faster.

Also have a look at the moneysavingexpert money makeover to review your budget and signpost to how best to tackle your debt.

www.moneysavingexpert.com/family/money-help/

Thank you everyone, this is some great advice!

Feeling silly as I’ve made DH sound like some kind of controlling nightmare! That’s definitely not the case @Angellegna @Yellowshirt. What I mean is that my quality life hasn’t changed at all really - I am living frugally in the sense that I am choosing not to spend money on the stuff I used to, so that I have more money to spend on the debt, but DH is making sure I don’t go without anything and still get the treats I would’ve got for myself! As a household he is covering some things too (as much as he can afford) so that I can build up my personal reserves. We both think it is important for me to have my own money separately to the joint finances.

0% interest card sadly not an option @BarbaraofSeville as my credit rating is a bit crap - I have had a look at the money makeover though and it looks so helpful! Will definitely follow.

@raisydenton would definitely consider a loan as £1.5k of the debt is with my usual bank. That’s a good idea to get moving with some of it.

I don’t use the cards or overdraft at all and don’t have access to them to be able to spend, so at least the debt is static.

As a rough guide for on here (don’t want to be too outing) debt looks like this:

CC1: £1.5k
CC2: £3.4k
Overdraft: £300

Monthly income: £2k
Monthly outgoings: £1.5k
Quarterly fixed outgoings (non-negotiable, not debt): £600

Looking at those figures I should be able to do this, but maybe I’m not as confident in myself as I thought I was as it seems like a mountain.

@screenburn thats great news

So you have a maximum of £450 a month as £50 a month need to go to the quarterly bills.(open a flex saver account and set up a dd) I would also put another £50 in there month so you have a little pot of £600 for unforeseen expenses or planned one.

That give you £400 on debt repayment. I got a loan and paid mine of over 18 months. Once it is set up you can forget about it! Yours is probably do able in a 15 or less as ball park (15months x£400 =£6000).

then you can start saving for your next adventure.

don't make you budget so tight you cant stick to it and end up back using cc. Make sure you plan for Christmas (if you 'do' Christmas) , as even being frugal it quickly mounts up. We both put 10 in a jar per month for our Christmas treat. I used to find that i always (used to) end up having £300 bill in January. This was the first year i didn't.

Good luck!!

Raisy that is so so helpful thank you!!!

No problem. I was in you situation 5 years ago. Once i'd paid it all off I saved the equivalent amount. It's totally liberating!

We have done so much since - holidays, weddings, bathrooms cars, decorating, nice furniture. We have separate finances too. We have account account for bills and household shopping.

Have a look at MSE budgeting advice (and piggybanking) as i do my own similar version.

@Screenburn I miscalculated your quarterly outgoings as annual so please re check!

You have £1.5k of outgoings but that is less than half to the household amount. That doesn't sound correct- what are the outgoings for?