Our new financial life -how do we approach this.

[MazzSUB]

Morning guys,

Me and my dp have been together for 3 years. We are both mid 40's and divorced with 2 kids each. We have just moved into together and are in the process of sorting our finances. It's a bit messy.

We both left our previous relationships with substantial debts - 45K me and 62K him. This debt came from our previous relationships. Please no judgement on this. We have both structured the debts to make them as cheap as possible - 0% etc so we are doing what we can.

We are trying to work out our household finances, with a massive priority on paying off the debt. We do have the option of remortgaging, however I am not comfortable with turning unsecured debt into secured. I have done a budget to include all of our livings costs, but no debt payment. This shows how much we have left after all of the living costs are paid. I am struggling to work out how much we need to throw at the debt, and how much we should allow ourselves to 'live a little.

I take home £3019
dp takes home £3258
Total - £6277

Mortgage - £797
Gas/elec - £287 ( cheapest as I could get it)
Water - £42
Home ins - £31
Car ins x2 - £73
Council tax - £142
Phone/internet/sky- £69
Food - £400 ( trying to stick to this)
Kids activities/clubs - £200
Mobile phones X 4 - £127
Car - £198
Petrol/diesel - £280
Birthdays/Christmas/random stuff - £150
Pet insurance - £14
Boiler savings - £200

Total - £3010

money left for debts and 'life' - £3267
Our joint debt payments ( minimums) are around £1500 so this leaves £1767 for additional debt repayments/life

Please can I ask for no judgement on the debt. We have both dealt with the guilt and shame of it, but now we have accepted that we are where we are, and we just have to get on with sorting it.

How much of the £1767 would you allow yourself for fun, and how much for extra day payment?

Thanks in advance

I would save£250 to give you a bigger buffer

Pay £1000 on debt

£450 on fun money

Work overtime , side incomes?

I think it's just great that you're facing your debt and working together as a team.

Well done OP!

How long have you been saving to replace the boiler? How much do you plan on saving for this?

Does your workplace pension have Death in Service? Ours has, so we don't then oay extra for life insurance. Our DiS is 4x our salaries (each), and both would individually clear our mortgage in full.

I’d also keep 250 each fun money or for anything else that comes up and I’d put 1250 a month to the debts. As he earns mor and has more debt I’d pay off quite equally but s little bit more to his Ie an extra hundred or so a month

but you’re only paying rhe bare minimum at 1500 , I’d be looking at is there anything in your debts accruing interests? Because it’s going to keep growing/

I’d personally look to take out a loan to pay it off or anything accruing interest, Or add to the mortgage as you are going to be in this shit for ever , it’s going to take nearly 6 years as it is, and that’s without any further interest.

There is something in your wording. The can’t allow debt to hold back your happiness, want to live a little etc. is there a disagreement on how much to pay, are you a spender by any chance. Is having rhe money to spend equate to happiness for you?

Looks very complicated to me.

Is no-one paying or receiving child maintenance or child benefit?

I wouldn't be paying off the debts together, or lumping everything in the one pot in this situation. Maybe I'm misunderstanding though?

Is it your house Op?

the thing is, the debt is just one aspect of our relationship. We are very happy and want to live together/enjoy our lives together. I can't allow the debt to hold back our happiness

@MazzSUB

I understand that we are all different but this would be ringing the alarm bells very loudly indeed for me.

The first thing I would do, would be to model how long it is going to take to clear debts depending on how much you throw at it. When you see that it will take years longer, you may be more motivated to focus on paying off.

Having debts does prevent you enjoying your current life. It is effectively stealing from your future self. Far better imo to focus on clearing it off and then enjoying the additional you can allow yourself with a glad heart.

Getting yourselves out from under the burden of debt will feel much better than spending on birthday presents you essentially can't afford.

Good luck.

Tbh I'd go with something like British Gas for the boiler - about £45 a month to replace a similar model over three years or something (was looking the other day) and use the 150 to pay off debt. I'm already stressed at owing £5000 though, so I'm definitely not in the relaxed camp.

I think I'm probably a bit older than you so possibly have the benefit of hindsight but with your mortgage fixed for five years I'd throw as much as I can at the debt. If, as you say, you owe £107,000 and you are able to keep it at 0% interest then you could pay the £1767 per month and you would pay it off at the same as the mortgage fix ends. This should have the added benefit of improving your credit rating so that you would then be able to re-fix at a preferential rate. It's a tough one though because life gets in the way doesn't it. I mean your kids are only going to be the age they are once and I get that you'll want to make that time as enjoyable as possible so perhaps a happy medium of £1500 for the debt and £267 for "enjoyables"? This way you'd still have the debt paid off in 6 years.

As you're not (yet?) married I would do the following, I think it is fair but also gives some protection to each party;

Put £1505 each into an account to cover your listed bills (including boiler savings)

This leaves you personally with £1515 per month.
I'd put £1250 of that towards your debt meaning you're debt free in 3 years.
You have £265 per month of 'fun' money.

Your partner is left with £1753 per month.
If he has the same £265 of fun money, he can pay £1488 per month towards his £62k debt. If all debt is still interest free he will have a outstanding balance of £8432 at the 3 year mark.

If the boiler hasn't gone bang at some point in those intervening 3 years then there will be £7,200 sat in the bank and you can discuss then if you're willing to use this to pretty much clear the debt or if he is going to continue to service his own debt whilst you start to seriously build your own savings.

I've posted this before but this article is 👌

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

I paid off £35K+ of debt about 15 years ago with the support of my now ex-DP and broke the back of it in about 18 months. I didn't buy clothes or go on holiday at that time and got a bit obsessed. It contributed massively to the breakdown of our relationship.

Well done for starting to put together a plan to sort this out. Is there any way of being reactive every month - eg have a minimum amount to go against debt but the overpay more during months where outgoings are low?

No judgement on the debt at all. I'm terrified of that level of debt.

If it were me I'd have 3-5 very, very frugal years to pay as much of it back as possible.

I'd scrimp and save. I'd cut existing bills as much as I could. I'd look for a second job.

At 1250 a month that's only £15,000 a year! Over 7 years to pay it all off.

So could you commit to £1250 per month for 7 years or would you rather pay more, live frugally and get it gone asap?

Do you have pension savings?

Good luck and well done for getting this far and sorting it out.

Your home is still.at risk if you can't pay your unsecured debt too. Charges will be placed on your property.

Alarm bells ringing for me too.
Op you have good salaries/ income but 3 years down the line you have huge amounts of unsecured debt.
Was it more and you have paid more off or has it got worse?
People dont tend to be judgemental but they can be HUGELY helpful if they have the full facts.
If it is your property please be careful .
If you could tell us how the debts came about it would help.
If he is an overspender and you were left with debts due to FA then this has disaster written all over it.
The fact he has moved in and yet no discussion about finances first is worrying me.

That level of debt would be an absolute priority for me - I'd be throwing everything at it for the next few years to get rid ASAP. Perhaps allow £250 per month each for 'fun', put £500 per month into a separate account for emergencies and 'stuff' and pile the rest against the debt.

Once the emergency account reaches £5k, divert the £500 to debt repayment.

Agree with PP that MSE debt free wannabe boards are full of good advice and inspiring stories.

What are your retirement plans and pension arrangements? Have you sufficient provision in this area?
Over focus on debt clearing can waste opportunity to build up funds when you are already possibly over half way through your working years.
You're both probably paying a lot of income tax which you can put into a pension for free using salary sacrifice.
I'd adopt a mixed / balanced approach and address pension, mortgage and debt at the same time, but ensure that pension was a definitely included in my plans from this moment on.
When the 0% rate debt ends I'd look to clear all debt with a secured mortgage (fingers crossed for lower rates but I'd still do it) probably in until I planned to retire (20 years in your case?), and use the reduction in monthly interest payments and salary sacrifice to chuck in as much as possible into pensions while having enough to live on.
I'd plan to clear all mortgage/debt at retirement and have sufficient pension funds at the same point at retirement.

Side track but this sounds positive. So how did it contribute to relationship breakdown?

Your question - how do we approach this?....

Too much financial risk here, and focusing on detail, rather than the paramount protection of your overall financial welfare and that of your children.
Keep things much simpler for now. DP needs to take responsibility for his own debt, regardless of you joining households (as do you).

Maintain separate individual accounts, with a pooled joint account for household expenses, a savings account for longer term household needs and joint leisure activities.

It's not feasible to impose an extreme frugal regime for the length of time needed to repay that level of debt, and it would be punitive on the children. Allow for a reasonable standard of living for them.

Make yourself a 5-10 year financial plan to repay your own debt in a manageable and sustainable way - using your own remaining money. It keeps your debts ring-fenced. You maintain flexibility and reap the fruits of your own prudence. You can encourage and support each other emotionally, but financial wisdom and accountability should not be discarded. Like dieting, debt reductions works best with individual choices and self discipline.

Once all debt is repaid you can reassess how to merge finances with a clean sheet. By then you will have a very clear idea of your DP's financial diligence and probity.

Can you identify any spending patterns you have that you need to address? E.g. Amazon habit, splurges at supermarket, too many top up shops (this is my weakness) and check your aren’t doing these?

Also £400 food shopping when you have so much debt seems a lot. We are a family of four and I aim for £65/70 a week but I know I could get that down if I was stricter. I shop at Aldi. Id put a lot more money into your overpayments and then I’d try and reduce your food shopping and bills so you have more fun money, see it as a challenge! You’re more likely to do it if you feel the benefit immediately.

Just want to clarify, not meaning to sound patronising about spending habits but there might be an extra £10/20 here or there that you aren’t noticing.

@seekingasimplelife I agree with this approach. No need to completely merge to create mega-debt here, everyone pays off their own debt and is responsible for their own credit rating. Once clear of debt, and it's clear the relationship is working,that's the point to merge more.