How to get out of debt

[dg93]

Hi!

I'm wondering if anyone can give me some help, what are the first steps to getting out of debt?

I feel completely lost. I have an excel spreadsheet which says what we owe and has all of our monthly expenses on, which I've used for a few months now, but I still feel lost.

I don't know what the next step is that I should be doing?

We are up to date on all payments (minimum payments paid monthly), but have no spare cash at all per month so we can't do the snowball method...

We did a big monthly food shop this month (£150 for the 2 of us, which should stop our over spending on food and takeaways!) but other than that I generally don't know what the next step is here.

A lot of our debts are credit cards from when we were renovating, a large debt to my parents (house deposit - was 37k, currently 24k in 24 months!) and 3 overdrafts which are around 2k each but it feels impossible to get out of them.

To make it worse, I'm also now on maternity leave - but understand I'll have to go back to work fairly soon to get our payments under control.

If anyone has any ideas of what I should do next I'd really appreciate it as I feel completely lost. Like I've done all of the workings out, I've done the spreadsheets etc... but have no idea what I'm meant to do next.

The good news is that there are literally hundreds of resources/youtube channels/podcasts/facebook pages etc etc these days to help with finances and debt

Take a look at

Mamafurfur
The Female Money Doctor
Meaningful Money
Dave Ramsey

Seriously there are loads, and they'll show you how to tackle your debts.

Can your parents afford to give you a payment break for a few months?

If so, use that to get out of your overdrafts. You need to start at £0 psychologically with your bank accounts.

What interest rates are your debts on?

You focus on paying off the one with the highest interest rate first, if there's any spare cas to put towards it. Anything you can sell? Can one or both of you take a second job? Spare room to rent out?

You are paying mim payments on credit cards but paying parents super high rate of £13,000 in last 24m so £540 a month? Was that the agreed term?

Just paying mim on cards is practically useless as most of what you pay is interests. There are sites that you can input the debt and mim payments then play around with paying above that. That would be my first job.

Would parents take even £100 less a month off the repayments? Or are they flexible and you just want pay them Back as fast as you can?

Long term when you are back at work how much spare will you have towards the debts? There are debt charities around like
Step change or CAP who Be able to give you more specific advice. No spare room to rent? No extra work at evenings or weekends between you as a couple?

Look for balance transfers to 0% cards for as much of the debt as you can, although I know sometimes there are fees to pay which may be an issue.

I cleared credit card debt surprisingly quickly by setting up a set payment rather than minimum payment. Even if you set it for £5 or £10 above the current minimum payment it makes such a difference as the balance goes down but the monthly payment stays the same.

The first thing I would do in your shoes is contact every single company you owe money to and ask if you can freeze interest or lower payments for 6 months.
Do the same with your parents - review the agreement with them and see if you can extend it so you pay less per month.

Look through your spreadsheet and think hard on if there is anything you can cut back on (very hard with prices being what they are at the moment) but things like buying clothes from eBay rather than new (and connecting your account to a Nectar card so you collect points), having Netflix or Prime but not both, making lunch rather than eating out etc.
Anything you save, even the £3 meal deal you didn't buy today, move that money into a separate account then each month, see what's in there and throw it an a debt.

If you have anything to sell, list it on marketplace then put that money aside to pay towards a debt.

Shop smart - if you need to organise or buy pretty much anything, see if you can do it via a cash back site or in a way that provides rewards (nectar points, Tesco club card points, Avios points etc).

When DH & I were paying off debt, I did overtime and putting that money towards debts while DH (who's job doesn't have overtime available) sold stuff and did the admin stuff that either reduced bills or brought in money (as mentioned earlier).

Have a plan to review this in full each month to track your progress if you don't already - hopefully you'll be able reduce the bills enough to make a difference.

Also agree with PP - look at your minimum payments and if you can afford to pay £1 over the highest one you've paid in the last few months, set up a payment for that amount. Means your paying of a bit more of the actual balance each month rather than the bare minimum plus loads of interest.

Can you shift any debts to a 0% deal? It would reduce the interest so that more of what you pay goes to reduce the debt.

You need to work out which debt is most expensive and try to pay more than the minimum off that or shift it to a lower rate.

Join Money Saving Expert forum, prepare a statement of account and post it in the debt free wannabe section for great advice.

Can you ask your parents to stop the payments until you’re back at work? Makes sense to divert this to other debt to get it under control.

Go through your outgoings again and be honest with yourself about what you are spending. Do you really need everything on there? It’s hard to cut right to the bone but it’s worth.

Snowball method is great and even paying £10 a month over makes a difference.

You could try one of the following:

Ask your parents for a payment freeze while you pay off your 3 × 2k overdrafts (and loan for renovations - is that separate to loan from parents?)

Or

You've been paying your parents 1k pm - could this be halved temporarily so the overdrafts can be paid off? For any other debts ask debtors for a 6 month payment freeze.

Do your parents know the situation?
I think your best bet is to ask if you can focus on the debts charging interest first.
Or could an adult in the house take on extra work to pay down the debt and build an emergency fund so hopefully new debt isn't created.

Are your parents desperate for the money to be repaid? If not focus on the overdrafts first

So, apart from the loan from your parents, you should do a full statement of affairs regarding what you're spending on different things every month. Then posters here (or on Money Saving Expert) could suggest possible changes.

Thank you all so much for your messages, I actually never thought of the snow ball method working on a small amount of money, sounds ridiculous but that's really helpful.

With us bulk buying food ready for next month we should have at least £50 if not a little more which we can use to pay off some of the debts.

I've been signed off work with preeclampsia and then using some of my work holidays, before maternity leave officially started yesterday, and with this time I've been adding things for sale on Vinted. Last week we sold £85s worth of stuff - which is money we wouldn't have had otherwise!

I've just sat down with my partner and discussed a few fairly expensive things that we own, which he's happy for me to list for sale (for example a brand new watch, bought in 2017 for £250, brand new pair of Ugg boots, an engagement ring which was never used as he bought 2), so we will be spending the entire weekend sorting through everything we own and listing loads for sale, as well as sorting through our debts a little more.

I think the problem is that I feel so overwhelmed by everything, maybe pregnancy related but I hate not being in control - especially of finances!

With regards to the debt to my parents, unfortunately I wouldn't be able to not pay this. Basically my parents took the 37k loan out in there name and then gave us that money for the house deposit. I will ask them what the minimum payment on the loan is per month and see if we can decrease the amount paid until I'm back at work, as I agree it would be a good idea to use the money to snowball another debt!

Again, thank you all so much I really appreciate the help!

Once things are settled with your new arrival,
Would DH get a night time job? There's always loads of delivery jobs going.
They aren't every night and just for afew hours.

If you've renovated are you in a position to get a bigger mortgage? I know it's not usually recommended to remortgage in order to pay off debts but as you actually spent that money on increasing the value of the house I think it might make sense for you.

My partner is a self employed electrician, but is currently undergoing his last certificate which allows him to sign off jobs - as soon as he has this he will be able to take on big jobs on his own such as electricial rewired, which will mean he will be working all hours - he should have this within the next 2 weeks! He has a couple big jobs lined up for when he passes his exam.

He has signed up for deliveroo for evening and weekend work currently, but he only started this this week 😊

We had the house valued yesterday at £295k, we paid £155k so we are in the process of either remortgaging or selling and buying another house - probably another property to do up. We just need to figure out which option we want to go for - as we need to think about our little girl.

Our only issue is because our credit scores aren't great because of how much debt we're in, we were told it's probably worth us spending 6 / 12 months paying as much of it off as we can, so our credit score is much higher, and will allow us to get a much better deal - this is something we really need to look into

Always good to review your standing orders and direct debits. Cancel any that aren't essential (such as Spotify etc), and consider contracts for Sky, mobile phones, utilities, car leases, etc to see whether you can downgrade or fix for a new contract term at lower costs.

Slightly disloyal to MN but I paid mine off using the Debt Free Wannabe board support on moneysavingexpert.com.

Ps be careful with the loan to your parents if remortgaging/moving. When I bought my first property my parents and grandmother had to write to my lender stating that it was a gift and not a loan. If yours have done similar and there's a monthly standing order to them on your bank statements you provide, there could be an issue.

I had four credit cards a while back all paying minimum payments with stupid interest. I applied for a loan with the bank I've had my main account with since I was 16. Got rejected first time but left it a while, applied again and they agree on the proviso I close all the credit cards (except theirs of course ) but I had to reduce the limit. This never got done because I forgot to confirm my request but anyways. That was a couple of years ago. I'm now on the home straight with the loan and owe a bit on the card.

Strait not straight

Please don’t see this as a criticism - I have been guilty of overspending myself A LOT but have you made changes to your lifestyle as well?
You could only buy a house if your parents took out a loan
You have a brand luxury items that have never been used
He bought 2 engagement rings
You have 3 overdrafts
It’s great that you want to tackle debt but you need to make sure you don’t just get back into it again

@Hoppinggreen

Please don’t see this as a criticism - I have been guilty of overspending myself A LOT but have you made changes to your lifestyle as well? You could only buy a house if your parents took out a loan You have a brand luxury items that have never been used He bought 2 engagement rings You have 3 overdrafts It’s great that you want to tackle debt but you need to make sure you don’t just get back into it again

No offence taken at all, we have completely changed our lifestyle over the last couple of years.

Everything we buy now is second hand, if we need any new bits for the house we see if family members have stuff we can buy off them cheaply (they usually do and like that it's not sat around anymore!) we also use free cycle regularly.

The last 2 Christmases we made hampers at home, spending a maximum of £60 on 8 people - usually we spend a fortune, and haven't bought each other presents for a couple of years.

We still have a long way to go, one of them being takeaways, but we're hoping to get that under control over the next month or so 😊

Admittedly our spending was so out of control for about 6 years together, hence all the debt but the debt is going down, but very very slowly!

www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/

Ten years old but his concepts hold up so well