High income high debt

[chardonnayblanc]

Hi,

Has anyone else fallen into the high income - high debt trap? We have realised that our borrowing has gotten out of control. We are a couple on a good salary of £120K. For years we have been financially disorganised, using credit cards and not really worrying too much about it. Our high income has always allowed us to make the payments and we have kind of walked blindly into a high debt situation. Very embarrassing considering that we are supposed to be reasonably intelligent adults.

Has anyone else fallen into this trap, and what did you do to reverse these habits?

You need to write everything down and then work out a budget to repay everything

Cut your cards up (or at least put them in the loft or something, so you can't use them). Beans on toast for you I think. You will have to make some severe lifestyle changes if you want to get on top of this.

Work out which loans have the highest interest rates, and pay as much as you possibly can off those balances every month, while paying the minimum allowed on the others. As soon as you finish one, start on the next one.

Every single time you buy anything, work out whether it is essential or not. If it is not essential, then do without.

Swap your cards to 0% ones and stop using them. How much have you racked up and what are you buying?

Getting into debt is easy, getting out is the hard bit. It's a trap. Assuming that you are both on the same page, you need to concentrate on getting rid of your debt in stages. Stop spending. Start budgeting. What can you sell? When the debt is gone you can start living your life.

How much do you owe?

it happens to us all, on low and high income tbh

If you’re both on the same page, it should be relatively easy to tackle. If you’re not, well, you’re in trouble! How much is the debt?

Work out everything you owe and pay it off in the lowest interest way possible, putting it onto zero rate cards if you can clear it quickly or loans if a longer term plan is needed. Work out what you need to support your lifestyle and don't make the repayments unrealistically high. With a high income and meeting current commitments you will likely have a good credit rating and good flexibility about what to do about the debt.

You need to sit down do three things

1. Understand your current outgoings and debts (MSE has a budget planner)
2. Make a new budget and work out what you can cut back on. This can be used to create a financial plan to clear the debt - having an end date makes it easier.
3. Review your debt and interest what can be moved to zero interest. Prioritise high interest
4. Track and review progres, find free and low cost activities, you may need to skip holidays for a year or two also gamify it if you can.

I need to sit down tonight and get the exact amounts from our credit files, however we are in the region of 60K which doesn't include the mortgage. so 60K on a joint income of 120K.

The mad thing is that we have the means and the income to pay off this debt. I have realised that previous half hearted attempts to clear it haven't worked as I have never seen the real issue - our spending! I have transferred to 0% card, consolidated etc etc etc, however this never worked as our spending never changed. I have no idea why we have walked into this situation. I am very very embarrassed

The most important thing is that you and your other half need to agree that this is a problem, that you need to make changes and sacrifices and also how quickly you will try and pay it off.

Without that you are sunk. You will be saving £4 a day by walking to work and then he will go out and buy a boat!

Debt is a marriage ending issue. This is very serious.

The next most important thing is to sit down and work out exactly how much you owe, to whom and how much interest you are paying. You can then make a plan for how quickly to pay it off. Don’t be too strict with this. £60k will take you years to pay off. You have to be able to stick to this plan for years. So you need to build in some “nice things”. But not too many or you will never pay it off.

Been there. Started using You Need A Budget (YNAB) and tracking all spending. ALL. Then moving as much as possible onto 0% and paying off the interest ones as quickly as possible. Just paid off the last £6k over a year ago. Now instead of increasing credit card debt we have increasing savings.

No measurable difference in lifestyle either, but we didn't go down the "sacrifice everything until it's paid" route. It's amazing how you can spend gobs on money on stuff that doesn't really matter.

Is that £120k household income or each? Is it gross (before tax) or net (after tax)?

If it’s £120k gross household income, then £60k of debt is relatively high and won’t be easily cleared without a drastic change in spending/lifestyle. Do you have any savings to put towards it?

I totally agree - this is an emergency, however I don't think that it will be an issue for us marriage wise

Hi

Zero savings sadly - another symptom of our 'live for today' mentality

It's 120K combined gross. I think that we take home just over 7 grand between us. Our only saving grace is that our mortgage isn't too bad at £700 - the irony is that we weren't allowed to remortgage to clear debt as we had too much unsecured debt. I see that as a blessing now otherwise we would almost certainly have ended up with a much higher mortgage and loads of new debt.

Goodness that is a lot.
Get an excel document going with each part, each credit card on one tab. And a total on tab one. What's costing you the most? Is it all credit cards. What % are they? What rate? Or some loans, other things, student loans? Some credit cards are easier and cheaper to transfer over to a 2 or 3 year 0% card, than others.

Break it all down. Get your figures all in order, so you know what you're dealing with and that will make you feel better for starters.

It's awful isn't it. I am so ashamed. Yet it was so easy to get into between us - credit spending, balance transferring and then using the empty cards - couple of consolidation loans. A loan for the car etc etc etc. No excuses whatsoever but it hasn't been difficult for us to get to this stage

This sounds like a typical case of lifestyle creep.

You need to really sit down and know what you owe and exactly how much it is costing you. You may have around 60k in debt, but seeing the total amount you will pay back if you keep paying off what you are now will be a shocker.

I would suggest you try the snowball debt repayment strategy, where you start putting most effort into the most expensive debt first, there are loads of guides about it online.

However you have to stop spending, and cut up the credit cards, or it will never stop.

What I'm going to suggest sounds boring but it works. Spreadsheet worth all depts and monthly pay amounts. All other outgoing including amounts for treats/ birthday and so on

Then arrange one day a month where with and your Dh have a budget meeting. I know that sounds weird but it really works. It focuss your mind. It's in the diary and it only gets moved in an absolute emergency

1st step for me was getting organised with what I had coming in and out and what the actual figure I owed was.

After working out what the essential spending was I made a budget and took whatever I had to spend out on a Monday and left the debit card at home - I always think twice when I'm spending physical cash over tapping a card on a machine.

I cut up all credit cards barring 1 with lowest interest rate and put that in a tupperware tub in freezer - remember to remove card details from online shops too!

MSE has some really good advice but your start needs to be knowing your actual figures. When I started to pay down my debt I thought I had in the region of 10k it was actually a lot higher!

I set payments up over the min amount to reduce it and left them as a standing order ad then targeted the highest interest cards 1st with additional money. When that balance was clear I redirected that payment to the next highest interest card. That way what I was paying out didn't actually change while I was doing it which I found helpful for budgeting and when it was clear I had x amount leftover each month which was not ear marked for anything so I could build up savings without feeling as though I was missing or cutting back on things.

Set to reasonable levels though so you can still live and enjoy things as it helps keep you motivated!

You need to track back and analyse your spending for the last three months at least to see exactly where the money has gone. Then cut out all the "discretionary" stuff, i.e. coffees on the way to work, lunchtime expensive sandwiches, cut right back on smoking/drinking. Don't spend anything at all on clothes, makeup, jewelry, hairdo's, nails, etc for a couple of months - just use up what you've got. Look at all direct debits, standing orders etc and cancel all that you don't need, i.e. gym memberships, sky, expensive phone contracts, netflix, spotify, etc etc. You really need to go "Cold Turkey". How about selling your car to pay off the loan and buy a cheap runabout instead? With mobile phones, don't upgrade at the end of the contract, just cancel the contract and go on a cheap sim-only deal instead. If you hit it hard, you'll be able to clear the debt much quicker and then hopefully you'll both have more realistic spending habits and can avoid it happening again when you start spending again, but in a controlled and more realistic manner.

One of the things that I have done this morning is to work out how much we need to survive. By survive I mean to pay the mortgage, all of the essential household bills, do the food shop once a week and run the cars. I have also added an amount for things like car MOT's and kids clothes ( we do not need any new clothes - believe me).

For us, this 'survival' number is approximately £2400 ( a few pounds less but I have rounded up). This doesn't include debt repayments though. This number both horrifies and reassures me in equal measure. I am reassured that we can easily survive on our income. I don't take that for granted and know that this is a privilege that many do not have. I feel horrified as this lays bare the extent of our awful spending.

So, we potentially have a pot of about £4800 that we can apportion towards debt payments and other non-essential spends. This is what we need to focus on.

Okay, with £7k coming in a month and a relatively low mortgage payment, would it be possible to commit to putting half your net income towards the debt every month? What are your other outgoings?

If you paid £3.5k a month towards the debt and it’s currently all transferred to interest-free (is that the case?), then you’d clear £60k in 18 months. Painful but doable, if you put your mind to it. Good luck!

non smokers thankfully but I do spend too much on the old vino.

I have downloaded our transaction data from HSBC to do this analysis. It will be painful ;)

It's spread across a range of interest free and non-interest free accounts. I don't think that we are eligible for any furhter 0% offers right now