Debt. Don't know where to start, please help.

[Bonnie90x]

I've recently decided to stop burying my head in the sand and face up to my awful debt that's accumulated over the last few years. A combination of lockdown, being on maternity and subsequently out of work, poor mental health and piss poor money management sees me with about £12,500 of debt and I'm determined to tackle it head on except, I don't even know where to begin... I can make the repayments however I'm wondering if there's a technique to paying off debt that makes it a savvier process rather than just throwing money at it. I've recently transferred a balance from a high interest card onto a 0% one so that's a start,however I've got almost a grand on another credit card plus a high interest loan which takes the bulk of my wage to pay off. Has anyone been in a similar situation to me and managed to get a grip of debt repayment and tackle it successfully? I've been in touch with stepchange and they suggested an IVA which I'm considering... Any advice welcome

Hello,
We've used the Dave Ramsey baby steps and have paid off 33k in 12 months. Worth a google. It's American but can easily be applied to the UK. It isn't a quick fix and isn't for everyone but it's worked for us.

I agree, start with the Ramsey Babysteps.

m.youtube.com/watch?v=MBfdNdRQVDc

Wow that's amazing. Thank you very much, I'll have a look at this!

Did stepchange ask you about your cashflow plan/budget?
Getting to grips with where money is going is vital. Track every penny. Aim to plan in advance where money will be spent, in broad categories like Food, Transport, Housing. Then as you get better at forecasting what needs to be spent, you can have more defined budget categories such as children's clothes/shoes, adult clothing, rather than the more broad category of clothing. With regard to clothing, audit what you have. Now is a good time of year to put away winter wear and have summer wear out.

Meal plan if you are not already. Food costs have been going up a lot recently. Look at portion sizes and cooking in bulk, so you your own 'ready meals' if needed.

Another vote for Dave Ramsey. It works!

Ramsey Babysteps
The ones you want to focus on are:

Babystep 1 : £1000 starter emergency fund.
You need a buffer for the unexpected. A car tyre bursts, the toilet flush breaks, the washing machine stops draining, a family member is in hospital and you need to visit them.

This is the easiest, yet also the hardest babystep. It helps to break out of the cycle of debt. Until now you may have been using a credit card or overdraft for life's emergencies. Having a buffer is a change in Money Mindset. You are going to be a person who has money, not debt. When something unexpected occurs it will be an inconvenience, not a financial disaster.

How to get £1000.

• Work as much as possible.
• Sell stuff. Have a clear out. If it is in good condition list it on Vinted, Facebook Market Place where ever you find that type of thing sells. Price it realistically so you get the sale, but keep in mind postage costs if having to post items.
• Be on a very limited budget. No takeaways, no holidays, no fun unless it is free. Make a sacrifice now, so your families future is bright later. It will be hard. Every time a child asks for something, the answer becomes No if that ask has a cost. With older children, explain what is happening, so they realise that lights, water, food, going to the cinema, all these things have a cost and where money comes from. Keep it in simple terms that they can understand. Play board games like Monopoly which has the concept of buying things, paying for things, running low on money, then getting paid (Passing Go).

Track every penny coming in and out.

Pay the minimums lenders require on debts. If you cannot meet the minimum requirement, ask lender if they are able to offer anything short term, such as a freeze on interest / Breathing Space scheme.

Aim to get this £1000 as quickly as possible. Within a month or two if you can. The quicker the better.

Babystep 2 : The Debt Snowball
List your debts, smallest value to largest value. Ignore the interest rate.
This goes against maths... just run with it. Don't over think it. There are studies that show that this method works, even if overall the interest paid may be a bit higher.

Pay minimum on all debts.
Put all available money, from working more, selling stuff, towards the smallest debt.
You are changing your Money Mindset. You are proving to your mind that you can pay off debt. You are a person who pays off their debt. By setting a small goal, achieving that, you then know that you can set a higher goal and achieve that.

Once smallest debt has gone, the payment you were making to that debt now goes to the next smallest debt.

This is not a quick process. On average it takes 2 to 3 years to pay off debt. In some cases it may be a lot longer.

Listen or watch the Ramsey Show to help stay motivated. It is American and may not appeal at first but give it time. By listening to other people calling into the show you will learn how the Babysteps are applied and how people do win following the plan and how sometimes they fall off and pick themselves up and get back on again.

search for Ramsey Show in your podcast app, Audible, Spotify.

There's a template letter on the Money Supermarket website that you can send to your creditors requesting that they stop all interest and charges. You offer a payment plan that you can afford with a statement of your income and outgoings.

I did this when I was £17k in debt and managed to pay everything off in 4yrs.

Much more manageable and takes away all the anxiety. I've been debt free for 7yrs now.

We used Dave Ramsey and are now debt and mortgage free. It’s not a quick fix as others have said, but it works and you change your mindset about spending. Once you have that emergency fund you will feel so positive.

http://www.nationaldebtline.org/

Ask about breathing space scheme. They can contact your creditors for you giving you two months. At same time do a full review of all your income expenses and do a budget. Budget planner tool Martin Lewis. Keep prioritising priority bills.

Do you have an income ?
Have you worked out a budget ?

I did this also, it is very liberating and the debt charities are very good.

If you go down this route (either for a DMP or IVA it does impact your credit rating so consider this

Thanks so much for all this advice it's invaluable and so appreciated. Also thank you for not judging me too harshly even though it's well deserved.

Yes, I'm working but not quite full time as I've two young children. I haven't actually done a proper budget, I'm not sure how.... Is there a template for that too? A lot of my money goes on food , I really struggle to keep the supermarket bill down. Petrol, stuff for the kids. Very little else but I do confess to being a bit of a fritterer!

Moneysavingexpert.com is great for working out a budget and signposting to checking benefits, reducing bills and what could be the best solution.

Do you own or rent? An IVA seems a bit extreme for 'only' £12k of debt, as there's a lot of fees to add, are you sure Stepchange suggested that? You'd need to be sure of your income and budget over the next few years for a start, eg if you're expecting your mortgage to increase you might struggle.

Don't agree to anything until you get your budget sorted as you won't know what payment you can afford.

You also need to get a handle on your spending as its likely you'll always struggle with debt and money if you don't.

First of all, and this little piece of advice blew my mind, you need to look at debt as a service, not a liability.

Debt isn't always bad, some of it can be very useful.

Keeping a small balance on a credit card, maybe paying a few quid in interest each month can be a useful financial tool. You build your credit, the card company will slowly increase your limit, which in turn increases your credit utilisation and boosts your score. It gives you amazing flexibility as long as you are disciplined about how you uses it.

So don't think of your 12k as bad debt. Your aim should be to get your repayments down to a level you're comfortable with, the balance will take care of itself so long as you keep chipping away at it.

12k on zero percent could be cleared in for or five years at 200 a month.

You don't need to run a balance to boost your credit rating. That's terrible advice. If you pay it off every month you get the same good credit rating and high limit for nothing.

If you can actually afford the repayments and a budget re juggle and a tightening of belts means you can pay the debt off quicker then do this. Don't go down the route of an IVA or asking for interest to be frozen etc as it will seriously damage your credit file for years and years

One of those sites like Credit Karma is good for showing you cards you might be eligible for, if possible you could get one (or 2/3) O% balance transfer cards, transfer your debt and then set up direct debits to these for what you can afford (and their minimum payments) and calculate how long it may take to pay it back

This would be a route to take to avoid damaging your credit rating, as a PP mentions it can take years (6 in fact) to be wiped off your file

Thank you all so much. @Orangesandlemons77 I've looked at credit karma and have been able to get another balance transfer card for my other credit card so that's both credit cards ready to be paid off. Tomorrow I'm going to take myself off with my laptop and do a proper budget and I am going to really stick to it. Feeling so much more positive now so thanks to all for taking the time to reply, it really has helped.

Budgeting - I've heard a lot of good things about You Need A Budget but I think there might be a cost involved. Moneysavingexpert sounds like a better idea.

My bank does a budgeting tool and it is completely useless.

I did an Excel spreadsheet. The first column has my income sources including child benefit when I got it, plus the date it goes in. Those are added up.

I then have a set of 3 columns listing my regular bills with the date they go out plus a description. I use that as the basis for each month to copy and paste.

Each month then has another 3 columns. At the top of the column i put my working total (bank balance) and update that daily. A description of the bill, the date it goes out and the amount. Then I have some empty rows to add spending as I go, a cell adding up the total, and a cell that shows the total outgoings so far subtracted from the working total (remaining money).

As each bill goes out I delete the amount from the monthly column. I also add amounts I know I'm going to have to spend in the future - train fares, presents. If there are regular costs that aren't e ery month eg hairdresser, I add in some months ahead and put it in. Admittedly when we were broke I just grew my hair and invested in clippers to cut dh's.

The key is to update it daily with the working total and spending. Track everything, every debit card use, kids' pocket money, £1 to the cake stall etc etc. You can see your bills coming up and adjust as necessary.

Im afraid I also really disagree with onefinemess above. The simplest way to improve your finances is to pay off credit cards and never use them again.

A free and easy alternative to YNAB is to separate your money into different accounts or pots once you have worked out your budget.

One for regular payments including a monthly standing order to a savings account for annual and irregular expenses like insurance, car expenses etc.

One for monthly essentials like food and travel.

Another for spending money. If you want something that is non essential you buy it from this account and if you have nothing left you can't have/do the thing. If you want something more expensive you can move some of this money to a savings account to save up.

You can have as many accounts or pots as you want and once it's set up it pretty much runs itself except to review each pay day.

iva Seems a bit harsh, that could restrict you if you want a mortgage. Dmp not as harsh, maybe try that?

Maybe not even a dmp, just pay as normal - the most expensive debt first?