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?

Whoops cross post.

If your outgoings are only £2,400 a month then honestly I think you will be fine.

Aim to clear the debt in the next 12-18 months.

Ditch the shame, OP. It is a completely unproductive emotion and it won't help you to solve the problem.

There is no point in beating yourself up about decisions made in the past. You are where you are, and what matters now is that you take steps to change your spending habits and deal with the debt.

You can do this... think positive.

Yes we’ve done this, also high earners. It took a wake-up call with a potential redundancy to open our eyes. It takes time but you can do it. Then work on getting some savings together in case one of you loses your job

Please think carefully about your budget to make sure you do include all the occasional items that don’t recur every month your budget has to be accurate and realistic or it won’t work. Another thing if you are feeling discouraged is to remember that you have effectively borrowed from your future and that’s what you are paying back. Not saying this to be unhelpful at all . Good luck use your skills to solve this issue.

My exh left me in more debt than this with a £30k income. It's hard but I paid it off in 3 years - I did end up homeless for a while though. I just had to get rid of it I was drowning. The difference for me was I used Payplan who manage the debt for you and froze interest etc so I could concentrate on clearing the debt. You will be fine. Cut up the cards take them off any apps they are saved on and live from your current account. Prioritise highest interest first and anything that could lose you the house, mortgage council tax etc. then make a savings account, out a little in their EACH month so you are not stuffed if the car or boiler breaks down air to have a years salary in savings eventually and live with your means.

bless you, I am so sorry that you had to deal with that. What an inspiration though :)

Easily done me thinks. Set some basic objectives. Set up dd's to pay off some things. And put a small amount aside, say £200 or £250 into a separate account. you might need that to pay for something, eg car repair. If you don't, each month you can then use it to pay off more off an old loan. This will make you feel better. And still allow a bottle of wine, but a cheaper good Aldi one or Sainsbury's. Or else life will feel grim. Budget for a cheap holiday, long weekend away, because once you've paid this off, you'll feel better, and can hand a holiday next summer or the summer after. Not all holidays need to be £xxx, Dh found a cheap all inclusive to Alvor Portugal, and another to Majorca Apr 22, cheap as chips!

Allow a bit for 'fun' as then you'll be more likely to stick with it, and for your children's sake.

I can still remember the awful period when we'd just moved house and my parents reduced spending to almost zero to pay for the world's most expensive carpets. It was miserable and unnecessary.

Also ring them. Give them a good sob story and they may freeze interest, give you a payment holiday, something. No harm!

just a bit worried about impacting my credit score as I may need to balance transfer to 0% or get a better mortgage deal etc.

Wow, so 7k coming in, say 3k for essential bills, food, ect. Leaves 4k plus 60k of debt. What on earth are you spending 4k+ on ?

I know - no excuses. Our debt repayments are quite high, but there is still a lot of money that is disappearing into a vacuum of unregulated spending. Holidays, weekends away, furniture, clothes, clothes, clothes, clothes........ Little unececssary top up shops that we both do 3-4 times per week spending £20-£30 a time. The debt has accrued over about 6 years so we have basically overspent by about £95 per week each during that time. This is what it is for us - lots and lots of little/medium spends as opposed to big items etc

Based on that Pay off 5k/mo for a year and it's gone. Not really an emergency imo. Emergency would be 100% of gross earnings and you just lost your job.

I'd do 18mo at 3.5k/mo and have 1.5k disposable/mo for whatever.

The key will be discipline and getting it done.

Good luck.

How about selling a load of stuff you've bought in the past, i.e. clothes, childrens' toys/games, books, CDs/DVDs, old phones/laptops/consoles, etc? We had a massive purge a few years ago and cleared few thousand pounds (after Ebay fees, postage etc), just by clearing the house of clutter we'd accumulated, that we've not missed at all.

I remember on an old consumer debt programme (I think it might have been Bank of Mum and Dad?) when people had built up debt through essentially overspending and living beyond their means, they gave them a subsistence budget (in cash) for a week or so and made them go cold turkey so they could then work out where they were overspending and what was essential and what was not.

They then sat down and worked out a proper budget - I think you need to do something similar and really address where and why you are overspending and then spend within your means. You have a healthy income so you don't need to cut back to the bare bones, but you do need to get a handle on it (is the spending just lifestyle creep or keeping up with the Joneses for example).

I think you need a new approach to managing your money. Money saving expert forum is a good place to get support on paying off debts and yes there are lots of high earners on there and the only difference between them and people on more modest incomes is their debt tends to be higher before they worry about it. As I often say though a high earner has as much or even more chance of losing their income through sickness and redundancy as someone who does not earn as much so addressing it is definitely a good idea.

My suggestion is you write out a budget with all essential outgoings and sort out the debt by setting the repayments on the 0% cards to slightly above minimums and any spare income to the cards charging interest. Debt consolidation loans are the worst way of tackling high credit card and loan debts and really only means you are shuffling debt around and kicking the can down the road inevitably meaning the debt gets higher.

As well as doing a budget and making a plan to repay the debt reducing your reliance on credit is a priority. Stop using credit cards and get a bank account which either gives you savings pots or a spending app to keep on track of your budget. Monzo and Starling are good for the savings pots. Get in the habit of saving for holidays, Christmas, car repairs and insurances and household items. Very few of us, even those on high income can spend without any sort of budgeting control and I am sure in a years time if you get better at managing your money that debt should be at least £20k lower if you can manage to repay about £1700 each month to the cards. From the sound of it that should be manageable but it depends on your essential outgoings.

Don't set up arrangements to pay or ask them to freeze interest if you are worried about your credit rating as they will put AP markers on your file.

Work out how much you need each month for bills, put it in a joint current account each month with all your direct debits set up. Allocate each of you some personal spending money for each month and transfer it to a Monzo card or similar, and only use that when out or online shopping. Hide/freeze/cut up your other cards. Throw the rest at your debt, clearing the highest interest debts first.

Be strict for a year

If have just under £5k a month and £60k debt

In 12mths it will be a lot lower if you spend the excess on it

Yes been there! Despite others telling me - remember to save for an emergency fund, don't live beyond your means, etc I did it. Maxed out credit cards and loans and spent what I had. I had the light bulb moment and the well known money saving website helped me enormously. As others have said put a plan together (state of affairs detailing all incoming and outgoings), try and make them cheaper (move phone deals, pay ctax over 12 months, etc) and then plan how you will stop spending and pay off debt. It took a few years but I got there in the end. And thankfully my earnings continued to increase but my spending levels haven't increased, if anything have reduced. Now I save 75% of my income.

@chardonnayblanc , yes been there - similar gross income (slightly less, but a few years ago) and similar debts - manageable but scary at 3am!

It happens, don't be embarrassed, be proud you are addressing it.

DH and I got the debt down through a combination of luck (a PPI payout) and determination (my MSE, and mother inspired management!). This was ten years ago, so for the last ten we have been building savings/paying extra off the mortgage. This year (well last, 2023) we have been able to spend a significant amount on a reno project for the house - and we still have savings but have put some purchases on 0% cards we know we have more than enough to pay off.

Why am I telling you this?

Because DH ten years ago was a real 'carpe diem ' type (what's latin for 'spend the day?!), until he saw the savings account growing, - he is currently stressing about the money we spent on 0% cards (we could pay them off tomorrow and still have savings). We had a total mind reset by getting rid of the debt - and we have a very comfy life now - supporting DD when she needs it, holidays, theatre, dogs!

Saving can be addictive, security even more so!

We are now at a point where we can live comfortably on one income if we need too.

We spoke about it lots last night. DH was quite down about it. I am worried but I do keep reminding myself that we are lucky in so many ways. Despite our debt, we can pay our bills and put food in the fridge, and that is something that I am grateful for as a lot of people don't have that luxury at the moment.

We're not in a dissimilar position so I thought I would comment in support of you.

It's easily done on higher income, especially if you socialise with others in a similar position!

We earn around £140k and have about 58k. Thankfully all bar a 5k loan is on 0%.
A lot of ours is house improvements but not all of it.
We have been paying it off for about 9 months now and you'll be amazed how easily you can do it. We have made the decision to still have a holiday but we're saving for that separately.
We are aiming to clear it in 3 years.

I guess my point is you have to work together to achieve it. Our biggest savings come from meal planning/meals out etc. we are overpaying where we can, even if it's a £10 to a card it all helps!

Firstly, you need to admit how much you have. I bet it's higher than you realise

When you budget, make sure you put everything down, even spread out yearly or one off payments, that way you know exactly what you need to budget. I've just started tallying up what I spend on my food budget as I'm always over. Trying to work out if the budget is too small or I'm over spending. I suspect the later.

My budget spreadsheet is always open, I mark off when the direct debits have left my account and always check in case of error's. It' sounds a lot, but takes literally a few minutes a day and the tally up at the end of the month takes a few minutes more.

I think it’s surprisingly easy to get into this position, even on a higher income. We were in a similar position- as our pay increased we were complacent about our spending and always overspent slightly in each area without having a proper budget and ended up with a lot of debt across loans and credit cards.

Working out where you’re at is step 1 and almost the most difficult part mentally. Once you’ve faced up to it you can make a plan.

Good luck.

Drugs?