Dire finances - need to get a workable plan

[brokemitch]

morning everyone

TFIF

Just got to work early and office quiet and empty - so here goes.

We are in a dire financial hole at the moment. We are very very heavily in debt due to spiralling renovation costs, poor financial management and lack of communication between me and dh. We have had our 'lightbulb moment' and now is the time to get this shit sorted. At the moment a remortgage is not an option as dh has a CCJ ( unpaid parking fine) so our broker has advised us to knuckle down for 2 years and then try again. I have consolidated some of the debt and shuffled things around to minimise interest, but it's not all interest free/low interest so we need to prioritise those debts first.

So here is our horrendous budget.

we pay for all of our mortgage, house bills and essential direct debits out of our joint account and this comes to £2126 per month. This includes every single direct debit phone bills, insurances etc

We spend about £500 a month on food if I go to Lidl for 2 adults and 2 teens.

My car is electric and I get free charging at work. Dh spends about £200 per month on diesel.

Other life events- car maintenance, birthdays, christmas, school trips, school dinners, haircuts, prescriptions comes to about £250 per month.

We have a joint take home pay of £6754 so after all of this stuff has come out, we are left with £3678 per month

Sound good right????..... but.... I havent factored in the debt payments....

So out of the £3786 we have £1500 debt payments. It's a lot but I have structured it so that most of it is paid in 4 years. On top of this, I also have to pay my parents £300 as they supported us financially with an interest free loan.

This takes us down to £1986

So this feels like a lot of spare money but I don't want to look at it like that. We need to use this money strategically to get out of this hole.

I would welcome the views of others - WWYD. I know this is a very dire situation, so no judgement please - I am a little fragile right now

Do you have an experien account. Go into that and see what your credit score is. You can press a button there and improve it “automatically”.

Cut up credit cards. Use spare money to pay down the debt asap. There are two approaches - pay highest interest first (makes more sense). Or the snowball method which is start with the lowest balance first. This can incentivise and encourage getting debt free.

How much debt are you talking? You need to live within your means going forward. Never accrue debt you can’t pay off monthly.

Good luck!

To get some really good advice from very knowledgeable people I would recommend posting this on the Debt Free Wannabes board on the MoneySavingExpert forum.

Are the renovations 100% necessary? Our house is liveable but could do with a lot of work. However, we don't have the money to do it, so we just sit in it as is. Obviously that doesn't stop you needing to sort out the debts you've accrued but maybe you need to look again at spending and whether it's necessary or not.

I'd put £500 of that 1986 into short term savings - only to be used for roof repairs, broken boiler etc.

£486 per month into the smallest debt and 500 into the largest.

It's not a dire situation. You've got more than enough money coming in to pay off your debts and live a comfortable life, plus some left over to pay off your debts faster.
Just live frugally and pay off the debts with the highest interest rate first.

You have a great surplus. I’d second the money saving expert debt boards. They can be harsh but fair I think. Also a lot of advice would tell you never to remortgage and make that debt secured over your house.

You have plenty of money to be able to pay down this debt. How quickly will depend on how you want to live. Some would live very frugally to get rid quickly. Others so they can have the odd treat/holiday etc. it’s got to workable for you and your family.

I agree with maybe starting a small savings account for emergency to stop relying on credit.

Have you posted about this before? I've seen at least three threads in the last few weeks with very similar numbers, someone panicking about debt that is easily repayable in 2/3 years.

If not, have you reviewed all your bills? A few quid off your phone, broadband, TV etc costs is a few quid more to go towards your debts.

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

Then snowball, paying as much as you can off the highest interest debt, when that's paid off, move onto the next one, etc etc.

Do anything you can to reduce interest charged if possible - move to 0% deals.

Allow a small amount of personal spending as you can easily afford it, won't significantly extend the term or increase the cost of your debt.

Stick to the plan and you should find that in a couple of years, you'll nearly be out of debt and almost certainly won't need to remortgage, as you'll be nearly at the end and won't benefit from turning short term debt into long term secured debt, but you might be able to use 0% credit card offers if you are still paying interest because you don't get accepted for anything now.

Hopefully you'll also both have got used to managing your money and household admin better so you're not tripped up by silly things like CCJs for unpaid parking fines.

Good luck

It's actually really interesting seeing some of the most panicked and catastrophising posters around cost of living/debt are actually those with massive income and huge disposal oncome that many can only dream of.

Certainly the demographics that I would expect to be feeling the greatest pinch aren't those being dramatic about it.

I would:
Look at Dave Ramsay. He's a bit of a loon but once you get past the US religious stuff he will give you what you need about paying off your debt fast.
Get on a proper budget with your husband. What you have given isn't a proper budget. Look at something like YNAB which I found recommended on Moneysavingexpert forum years ago. It gets you putting aside money monthly for annual expenses like insurance, gifts, Christmas and so on so you stop looking at your bank balance as how much money you have. It syncs with your bank accounts and across your devices and also makes you talk about money once a month at least to use it successfully.
Also the MSE debt free wannabe forum will have a lot of useful help and advice for you on how to shift this faster. I think you really do have the right mindset, it's not 'this isn't that bad', stuff like your partner having an unpaid parking fine leading to a CCJ and your spending not being under control leading to you spending significant chunks of your income on repayments (you haven't actually listed out the debts, the interest rates, what they were for and what you're worth which the debt free wannabe forum will get you to do, it's very useful) - you are absolutely right to be getting this under control now before it spirals completely out of control and you end up in a worse mess.
For what it's worth (I'm not a financial adviser) I would say it's a good thing you couldn't remortgage and in 10 years time if you play this well you will look back and be glad. If you remortgaged you'd be spreading the debt over say 20 years with interest accordingly, and there's a lot of bad things that could happen to rates in that time, none of which involves being interest free. As it is, some of your debt is interest free, you're highly motivated and angry at your situation and I think your OP suggested you could deal with this in less than four years. You'll be so glad when it's gone.

If I was in debt I'd give my children a very modest budget for Xmas and birthdays. I'd agree with DH that we would not do a birthday or Xmas gift for each other. We'd just cook each other a lovely meal at home. If you have Sky TV it is going up a lot. My son's Sky bill was £77 because he has all the Sports channels. They put it up to over £100 per month. He rang to cancel and they agreed to reduce it to £79 so only £2 more than before.

Honestly fed up of these posts form ppl with good incomes plenty surplus but carrying on like they're on the breadline.

Personality I would throw more money at the debt. You’re still left with a huge amount after debt payments - more than a lot of people. If you’re really concerned about the debt I’d throw everything you have at it.

£250 a month sounds a lot for all those bits and bobs you mentioned.

personally - auto correct!

Don’t read them then. The OP has just asked for advice on the best way to manage her debt.

I agree with listening to the Ramsey Show podcast on a frequent basis. It is American but the process works. It may not make sense at first, but trust the process.

You need to have a change in money mindset. Debt can become a cycle and it is hard to break. Create an emergency fund. Pay minimums on all debts and pay off the smallest debt. You need the quick win to teach you that you are someone who repays debt. When you get to a point where you have a few debts all around the same value, then you can pay them off in highest interest to lowest interest order.

Track every penny for at least 3 months. Have your cash flow plan as tight as possible, so as much money can go to debt repayment as possible.

Podcast about budgeting if needed:

Podcast about budgeting if needed:

I know this is a very dire situation

No, it’s not.

In your shoes I would either-

a) Pay more off the debt to reduce the debt term.

or

b) save the £1,900/month so that, in two years time, your husband’s CCJ will be gone and you have a good lump sum to use when remortgaging to hopefully provide a better LTV.

I genuinely think you’re catastrophising though. You have a lot of money left over each month. Enough that you could clear your debts very quickly if you wanted to.

We are not in debt, but what has helped us keep control of our finances better is all direct debits come out of one account and we move funds to another account for everyday spending, that includes food, fuel and other monthly incidentals. WE know what we can manage on and only put that amount in this account. For us the rest goes to savings.

For you I would suggest keeping a spare £500 or so in an easy access savings account for emergencies. Add an amount needed for monthly expenses into an account you use for every day spending, and make sure you do not go over that amount each month. Keep an eye on spending in that account. If you have a meal out one week, then you need to live quieter the next week. Then put the leftover towards the debt. Pay even more than you are paying now. Pay down the highest interest debt first.

I see a lot of ‘about’ in your post and that’s your main problem- clarity.

We spend about £500 a month on food if I go to Lidl for 2 adults and 2 teens.

What about the top-up shops, and what if you don’t go to Lidl? Do you consistently come in under £115 per week for all grocery spending - cleaning products, toiletries, pet food etc? Sounds tight to me.

My car is electric and I get free charging at work. Dh spends about £200 per month on diesel.

Other life events- car maintenance, birthdays, christmas, school trips, school dinners, haircuts, prescriptions comes to about £250 per month.

With 2 teens I think you’re seriously low-balling your spend in this final category particularly. I’d bet you spend much, much more averaged over 12 months. Christmas & 2 DC’s birthdays alone when they’re teens is likely a lot?

What about clothes, shoes, makeup, hair cuts, entertainment spending like cinema, theatre etc, pocket money, holidays, hobbies?

And where is the home maintenance pot coming from - are renovations still ongoing?

I’m going to say YNAB would be perfect for you - take a look and do some research and see what you think. You need clarity and it’s wonderful for that.

How much is the debt and what are the interest rates on it? That's the only way one can really add value to this question.

Are things like your food bill Actually £500 per month, or do you just want them to be? Do you have top up shops, or alcohol being purchased separately or anything?

Chuck another £1500 a month to the debt. It'll be paid off in two years.

What exactly do you need advice for?

I'm not really seeing the issue here? Throw some more money at the highest interest debt, you have plenty left over to do this.

I’d create savings if you don’t have any- as another poster mentioned it will give you a lump sum once you can get a mortgage

So do you have 72K in debt (1500 x 12 x 4)? I can see why that is freaking you out, but why not just throw more money at it? Why pay £1500 monthly and fret, when you could pay more?