Debts and spending ... what would your next move be?

[Indecisivelurcher]

Hi folks would really appreciate thoughts on what your next move would be if this was you. Everything is bits and it's what order to tackle things in...

My current thinking is, pay off the car loan this week. Manage with the smaller car for a bit if we can, so we can pocket this money. But know that we will prob have to get a new car on a payment plan whenever we crack. Save up to do the home improvement works next summer. Then try to nuke the loan on 10% during 2022.

Debts:
Old house loan - £6500, horrible 10% interest rate but low repayments £76/m, can make overpayments flexibly
Small car - £3000, repaying £200/m, final payment Sept 21
Credit card - £1700, 0% interest, min payment £18/m - paying about £50 flexible
My mum - £4700, repaying £100 but flexible

Savings: £4500 managed to save this during coronavirus due to not having any childcare costs or using any petrol!

Saving potential going forward: est £500 a month
Can be used to save for things or to pay off debts

Upcoming spends:

Shed roof - £350 quoted

Car - we have a dying estate and a small car which we're still paying for. Change of DH job means we can go down to 1 car, ideally needs to be an estate or big hatch (dog plus children), petrol or hybrid/electric. Est £8-12k.

Home maintenance - list includes a new flat roof with skylight, replacing failed glazing, getting ds bed built over stair boxing, reconfigure back room to be a home office (I am home based) and built-in storage (we have none!) I am costing it up in my head as £6k of works. We have held off for a few years but these jobs are getting to the point where we need to make them happen.

I agree with PPs that you need to pay debts before taking on more. You need to pay off the 10% loan as step 1, not step 5.

I'm not sure why you're not even thinking of paying off the loan until step 5. It's madness to be paying 10% on 6500 when you have 4500 in savings

Can the big car really not be resurrected for a while longer? Then you can sell the small one, pay off the loan and have cash in hand (possibly to keep the big car going).

As per PP, you really need to put your savings towards the 10% loan. You are paying a shedload of interest (= money better spent elsewhere) on it. Your plan has you doing this for (at least) another 2 years.

Your roof also sounds the most urgent of your home improvements - not the least.

From a personal point of view, is your mum wealthy enough that she'll wait 4 years (or more) for her money back? Particularly if she sees you spending out on other things while she waits.

Because if I pay off the car now then I can save an additional £200 a month towards other things / or even divert that money straight to the 10% loan. And it gives me the freedom to sell the car when we can no longer put up with the squash and squeeze.

If I pay off the car now then I can clear the 10% loan in 8 months maybe by chucking £700/m at it. With no penalties.

So I think the key thing is to focus on debt reduction, put up with the small car abs the house situation as long as possible.

Or maybe sell the car and put that money towards the 10% loan?! Then get a new (second hand) car on credit but at a better % interest?

Have to do the house incrementally and keep costs low. And see if the roof is still bearing up to delay that one another Yr (for the 3rd Yr...)

Hmm. Thanks @redskyAtnight. Thinking more. My mum has been amazing, she asks for a regular repayment but not what size, even just a fiver a month.

The big car is 12yrs old petrol estate, the clutch is going now and it has a dangerous habit of losing power and dropping speed that is actually quite dangerous, no mechanic has been able to work out why.

I'm quite liking the idea of paying off the car loan, flogging the car, paying off the 10% loan with that, getting a nicer deal loan for a new car, and saving up for home improvements 2021.

Or even just keep the small car for a year.

You have £17k of debt. Keep some emergency savings and then other than essential maintenance plough the rest into pay off all your debts.

Your 12yr old estate losing power and dropping speed is most likely the fuel pump. These tend to only last ten years or so anyway. It’s a small pump located in your petrol tank and over time it gets clogged up due to impurities in petrol. It should only be £300-£400 to replace. A clutch should also not be that expensive.

Anyway, while I agree prioritising the 10% loan for pay off is the smartest financial decision, but I would personally take ALL the £4500 and pay off your mum. It’s just my ethics that family comes first. Especially since this is a windfall from the lockdown. It’s shitty to me that someone wants to pay off debts but prioritises big corporations and strangers ahead of their own mum. There’s her helping you, but there is also taking advantage of her kindness.

Then to tackle the 10% house loan, I would look into refinancing the mortgage with cash out to pay it off AND do roof & glazing repairs. It is all house expenses so there’s nothing wrong with using equity as you are reinvesting it directly into the house & it’s value.

First month use the £500 savings to tackle storage situation. I’d personally not do built in storage, it’s expensive and reduces your home’s resale ability. Go on Gumtree or to charity shops and pick up old wardrobes or cabinets etc. On your DS bed, just buy a used bed off Gumtree and get your desk out of his room and into either your bedroom or downstairs. It’s not fair to be using part of his room anyway now he is old enough to be out of a cot bed.

Keep little car because it is almost paid off and will be lower cost on petrol for whoever commutes to work. Just use estate car for family days out. It also means you have a back up in case the estate dies.

Scrap shed, get a new one. £350 is new purchase price so it’s not worth replacing roof on it.

Going forward, you have £500/mo you can put into savings. Do that. Then in a year you will have money to buy a used large, newer car to replace the estate car.

@plan thanks, have mentioned fuel pump to garage(s) several times but they still seem mystified. Clutch could be done but verdict was don't bother. I can revisit it all.

There was a reason I couldn't put the house loan on the mortgage, from memory I think the mortgage company would give us £10k minimum for debt consolidation so stupidly we didn't have enough. We didn't want to put it all over because we felt we could pay it off and the interest rates on some of it was better than on the mortgage, which we'll be paying much longer.

A car would be a different category again with a £10k min. And home improvements a 3rd category. Stupid rules...

And now I feel guilty about my mum and son :( I can't work downstairs at the mo as the kids are at home. When they're back in school + preschool I can move the desk and sort his bed. I can put up with a small desk and higgledy storage until all our debts are repayed, done.

My mum I get the principle, but the money would be tucked into an investment platform I think for the future, and we are chipping away at it. She's done the same for my brother and sister.

Hello OP
I think you misunderstood. I’m not saying to add the house loan to your current mortgage but to refinance your mortgage, as in do a remortgage where you get a new mortgage from a new lender at a lower rate and cash out to cover all the house repairs and old house loan. See here for more detail:

www.moneysavingexpert.com/mortgages/why-remortgage/

Oh OK thanks for clarification, no I haven't considered that option at all so will give it a look

If you remortgaged you could overpay to get rid of the extra amount borrowed quickly so you're not turning high interest short term debt into low interest long term debt, which might not be any cheaper.

If you get a fixed rate deal, you are usually limited to 10% overpayment per year so watch out for that, but it wouldn't matter anyway if your debts or the amount you have available to overpay are a small percentage of your mortgage but you could also see if there are more flexible deals available.

Most people take out 2 or 5 year fixes despite being more expensive because they value the certainty over getting the cheapest loan even though it's not really foreseeable that interest rates will rise significantly in the short to medium term.

But if you do this, you really have to commit to staying out of debt and building savings up to pay for things like cars and home improvements or else you are likely to find yourself with a bigger mortgage and debts on top.

Oh once we're out of this muddle I don't intend to land here again!

Hi OP! I think don't prioritise your Mum as a pay back. Assuming she is financially comfortable herself. She lent you that money to help you out. Definitely sort out paying back the high interest loans first. They will be costing you more money over time. I would be happy to lend money to help my children and would not expect them to prioritise my loan over the ones that are actually affecting their credit rating or pushing them further into debt.

I agree, if I was comfortable and had lent money to my dc which they still need I absolutely wouldn't be rushing them for it back.

Thanks guys. If I gave mum the money back that then she'd add it to an investment platform. I am confident she's want me to pay off a loan first and probably even sort the house out. I'll be looking after her in her dotage, to make up for it :)