My Story: 2 Incomes, 2 Kids, Debt out of control

T

Turtledove

Guest
First Time Poster. Long time reader of Posts. I'm hoping putting this down in black and white will make a difference to my situation.

Age:

36

Spouse’s/Partner's age:
37

Annual gross income from employment or profession:
E45 (Net 2400)
Annual gross income spouse:
E65 (Net 3000)

Type of employment:
Public Sector
Spouse Private sector


Expenditure pattern:
Poor Money Management. Living beyond our means for a long time, that said have never defaulted on any payments.

Rough estimate of value of home
E310,000

Mortgage on home
E425,000 100% mortgage over 35 years (commenced 2006)

Owing E397,000 - we've been paying our mortgage for 5 years now.
No missed payments to date.

Mortgage provider:
BOI

Type of mortgage:
Fixed rate

Interest rate
5.39%

Other borrowings – car loans/personal loans etc
Car Loan: 320pm over 5 years (6 months in)

BOI Credit Card Visa: 9k
AIB Credit Card Visa: 2K
BOI Credit Card MasterCard: 4k
Credit Union 250pm over 5 years (This loan was to consolidate credit card debt. It worked for year. Now back at same scenario.)

Do you pay off your full credit card balance each month?
No, pay off minimum

Savings and investments:
3,000 in shares in Credit Union

Do you have a pension scheme?
Yes, I pay E230pm into pension
Plus Partner pays 250 pm into pension and AVC of 250 pm

Do you own any investment or other property?
No.

Ages of children:
2 and 3 and a half


Life insurance:
Yes.

What specific question do you have or what issues are of concern to you?

We are almost three years into a five-year fixed rate at 5.39%. Took out Mortgage 2006, fixed it in 2008 (interest rates were increasing at the time, fixed at level we thought we could at least pay if rate climbed higher). Going on the fixed rate proved to be a disastrous decision given the plummeting interest rates months later and as a result have been paying a significant proportion of our income in repayments ever since.

No matter what we do, at the start of each month all our money is swallowed up in debt repayments leaving us with nothing, hence we are using our credit cards for day to day expenses to get us through the month. Obviously not a good situation. We are now at a point where we are now maxing out all our available credit cards.

We are aware that we are to blame for where we are now, but we are looking for a way to loosen the grip the mortgage (2250pm) and other debt has on us.

Along with tackling the obvious such as cutting down on groceries, and lunches, what are our options here? Should we look to pay interest only on our mortgage? Would the bank play ball given our situation? How would we go about doing this? Would interest only even make a difference? Should we even look to sell the house and start renting to find some breathing space?


Any advice appreciated
Thanks

Turtledove
 
Some other detail:
Net income: 2400 (me), 3000 (partner’s) = 5400
Child allowance (2 kids) = 300
Mortgage relief = 330
Childcare = 1000pm
Car lease = 320pm balance 17k approx
Mortgage = 2250pm
BOI Credit Card Visa = owing 9k
AIB Credit Card Visa = owing 2K
BOI Credit Card MasterCard = owing 4k
Credit Union Loan = 250pm over 5 years (5,500k remaining)
Petrol = 150pm (two cars)
Parking = 75pm (need car for work)
Groceries = 700pm
Lunch = 100pm
House insurance = 55pm
Life assurance = 80pm
Mobile = pay as you go 20 pm each
ESB = 75pm
Gas = 90pm
Sky = Cancelled it
Eircom Phone and Broad band = 95pm
Waste Disposal = 30pm
 
Why is your partern paying 250pm into AVC, and why are you paying €100pm in lunches?, scrap those 2 and you'll have paid back the entire AIB card and over €2k of the BOI card in 12 months.
 
I did a full answer on this and it's disappeared.

You have not said what the repayments on the credit cards are. I make your outgoings at 5290 on an income of 5800.

You and your partner need to sit down and do a budget. You should not be using your credit cards to pay for ordinary spending. Are you both bad with money, it needs to be tackled and agreed upon.

As you've consolidated once I do not think you should try for interest only. Will only lead to more debt.

How on earth is the 100 for lunch justified? Also the spending of 17K on a car in the last six months despite all the debt? Are two cars and all the costs associated with them absolutely needed, is there no public transport. You need to turn off the lights and wear fleeces to get the utilities down. Groceries, you need a meal plan, there are some great posts on this but in any case if you have to you do beans on toast and spag bol for a year to cut the bill and pay back the credit cards. What is the interest rate on them? Pay back the highest interest rate first. Any possibility to move to an interest only deal? Cards need to be cut up in any case.

Either of you able to get a weekend of evening job for extra income.

Life insurance looks high, smokers maybe? Term insurance is the cheapest. Have a look into that.

It's not the debt that has it's grip on you, it's the spending. A year or two of tough choices and it's doable.
 
Your house insurance at €660.00 per annum seems expensive on a house valued at 310K. Shop around for a better deal . You should also shop around for a better deal on life assurance which is costing you 960 pa. Have you shopped around for better deals on Gas & Electricity,combo offers from Bord Gais, or Airtricity? Could you reduce the heat settings by one or two degrees do you have energy saving bulbs etc? Your Eircom phone & BB is costing 1140 pa This is very expensive. Have you shopped around? Check out callcosts.ie. I have very adequate BB from vodafone and phone @ 45 pm. Your bin charges are 360 pa. Can you recycle and compost to avoid some of these? Can you walk to avoid some petrol costs? Could you set a budget for petrol with a reduction of 10-20% say? Could you reduce groceries by a similar amt by shopping in bulk in Aldi,Lidl ? Try to set a target of 630 (10%) and see if you can manage it. That would save you 840 pa. Can you negotiate a reduction in childcare fees? Do you keep a spending diary to see where the money is going exactly? Make saving into a game so it doesnt seem like hard graft. Have you considered free to air TV so at least you can have something decent to watch with a fixed one off cost? Finally have you a financial plan? If not you need to do this rather than coasting along. Search AAM for financial planning tools/programs.
 
The first thing that strikes me here is your mortgage, it's nearly 7 times your combined annual net income which is extremely high. It's a huge noose to have around your neck for the next 30 years.

You could try selling and moving down to a smaller more affordable sized home and in the meantime try and come to some sort of arrangement with the bank regarding the negative equity. i wouldn't recommend interest only, you are only prolonging the agony.

Other monthly spendign thaat could be drastically reduced include changing over to Bord Gais for your electricity and reducing your usage.

Do you really need to spend €95 a month on home phone and broadband? look at your mobile phone package and get one of those monthly deals for €20 which includes 100+ minutes to other networks and then get one of those mobile dongles for €20 for your broadband. You will instantly save €75.

Sell the expensive car and buy a cheaper one for 4 or 5 thousand.

Buy your shopping in Aldi/Lidl and do a shopping bill

Cut down on the cost of your waste disposal, recycle more and look at bringing the waste to your local waste disposal centre yourself, it will drastically cut down on the cost.

Invest in lunchboxes and flasks, believe me you will recoup the cost in no time.

as another poster said...Stop paying AVC's

Can you get an interest only credit card and move all the others into it, then make a concrete efford to get rid of all credit card debt asap, then slice the card into two pieces!

Good luck OP, at least you are taking the first steps by posting here.
 
Start a spending diary, it is essential in your situation, once you have addressed where the money is going and how much you can cut back, groceries is an obvious one here way too high, then you can see exactly what the minimum you need to live on per month is.

Once this is under control then I would suggest asking bank for interest only for 6 mths or so to get on top of credit card debt, HOWEVER this is after you get a grip on spending. As your mortgage bank is also the holder of two of your credit cards they might be open to giving you interest only providing the saving went straight to the credit card bills. That combined with cut backs in spending would enable to clear these as soon as possible and needless to say not using them again.

Hindsight is great but that car loan that you only have for 6 mths was a dire decision, can it be sold or traded down to cheaper model?
 
Your petrol costs are 150PM, which is 35pw for two cars, ie 17.50 per week for each car. That would suggest that you both have an extremely small commute to work. Do you need two cars? Can one person not drop the other off at work first? Can public transport be used? You need to get your lifestyle in line with your spending asap, and look at the advice of the other posts. Also car tax and insurance for both cars are not included in your outgoings. Best of luck.
 
Thanks for the suggestions. Just to reply to a couple of the comments:

Regarding the Life Insurance - we got this through BOI when buying the house. It is basic enough I think, covers the mortgage in case of death. We are not smokers (or drinkers either, socializing is a rarity these days, we do eat out as a family once or twice a month, but shouldn't I guess)

Regarding the Cars - yes we could probably do without one of the cars, my partners trip to work is not that much. Looking at the petrol costs again I would say it is currently more like 250 rather than 150.

I did my best with the detail, but I realise now that there are other expenses that I don't have listed, Car tax, car inusrance, clothing, childrens toys, medical costs, attending Weddings etc. There are months where the Groceries go to 800/900 pm.

The Phone bill does seem high. I will shop around.
Waste disposal is with M r B inman

The Mortgage is a noose around the neck alright, and feeling heavier every day. It's a little demoralising that light at the end of the tunnel could be 30 years away. 7 times salary now, but we were only earning 40k each when we got it. Our salaries have increased but so have our expenses with kids etc. I appreciate that it is not as bad as many other posters on this site but we do need to get off this slippery slope. I would be the saver in the relationship, my partner is an impulsive spender, but we do not have much wiggle room at the beginning of the month either way. We both definitely want to change, reviewing our finances even for this post has been a wake up call.

Can we even sell the house with it in negative equity?
 
.......we do eat out as a family once or twice a month, but shouldn't I guess)

Definitely not while youre trying to get control of your debt - the kids are too young to care about eating out - its an unnecessary luxury.

.......Regarding the Cars - yes we could probably do without one of the cars, my partners trip to work is not that much. Looking at the petrol costs again I would say it is currently more like 250 rather than 150.

You need to downgrade the more expensive car - it was madness taking out that car loan only 6 months ago with the level of debt you both have, you should seriously consider getting rid of one car completely and having the remainin car as a much cheaper option than you currently have.

.......I did my best with the detail, but I realise now that there are other expenses that I don't have listed, Car tax, car inusrance, clothing, childrens toys, medical costs, attending Weddings etc.

You really need to start a spending diary to figure out what you are really spending on - there are loads of things we spend on without even realising.

.......There are months where the Groceries go to 800/900 pm.

There is absolutely no way the grocery bill should be coming in this high. You should be able to keep it to around 500 a month if you budget, make a list of what you need and stick religiously to the list.

On top of this you say you spend 100 a month on lunches? Why? Why does the grocery shop not include bread/a chicken/cheese or something to make sandwiches with each day?

And the AVCs should definitely be cancelled. Other posters have made useful suggestions also.

Can either yourself or your partner take a part time job to try and get the debt down in a shorter time?
 
Rough estimate of value of home
E310,000

Mortgage on home
E425,000 100% mortgage over 35 years (commenced 2006)

Owing E397,000 - we've been paying our mortgage for 5 years now.
No missed payments to date.

There are a few things standing out reading your post. According to the above you have only paid off 28k within 5 years and yet you state further down that your monthly mortgage payment is € 2250. Did you remortgage or something? Numbers don't add up for me...

Child allowance (2 kids) = 300
- CB is 280 pm

Credit Union Loan = 250pm over 5 years (5,500k remaining)
3,000 in shares in Credit Union
€ 2500 is owed. As Mpsox stated why are guys paying 250pm into AVC, and also paying €100pm in lunches? If you scrap those 2 you can easily pay one of the loans off incl. the CU one.

Parking = 75pm (need car for work)
there is no free parking anywhere near your work? Even if it requires you to walk let's say ten minutes? I know many people in work who leave their cars in a free park zone and walk the rest of the way.

Groceries = 700pm
you stated in a further comment that it's up to 800/900pm. Where do you shop? This is a lot for two adults and two small kids especially as you put your lunch extra. Aldi & Lidl should cut these costs in half.

Lunch = 100pm
this is crazy money. Cook an extra portion in the evening at home, put it in a container and bring it to work with you. If you don't have a microwave there, bring sandwiches with you because you're eating warm in the evening anyway. Same goes for juices, water etc. You can buy pre-packed stuff cheap in Aldi & Lidl.

House insurance = 55pm
unless you claimed off your insurance before I also don't see why you pay over € 600. This is a lot. Shop around.

ESB = 75pm
Gas = 90pm
in my opinion I think both can be cut as well. As someone else stated before, shop around, look at the competitor rates. I presume you've given us an average rate rather than just the winter bill? If it's the winter bill, it's ok but if you use a similar rate in the spring and summer, it can be decreased.

Eircom Phone and Broad band = 95pm
I pay € 50 pm with the competitor and it incl. Phone, TV & Broadband. Again, shop around.

Waste Disposal = 30pm
I presume you're getting billed quarterly? € 90 a quarter is a lot. You should at least be able to decrease it to € 60 a quarter, a tener less a month. Are you recycling? If not, start doing it. You'll be surprised how much longer it takes to fill up the black bin (I was when I started it).
 
I did a full answer on this and it's disappeared.

You have not said what the repayments on the credit cards are. I make your outgoings at 5290 on an income of 5800.

Credit Card Payments are about 450. I'd have to check, but about that.
 
There are a few things standing out reading your post. According to the above you have only paid off 28k within 5 years and yet you state further down that your monthly mortgage payment is € 2250. Did you remortgage or something? Numbers don't add up for me...

Thanks for the comments. Didn't remortgage, figures are correct as stated. Have been paying 2250 for almost 3 years. Previous to that we have been paying the mortgage at a lower % for 2 years (can't remember the % off hand, around 3.5%). We are 3 years into a new fixed arrangement. As it is fixed I guess I'm paying off less principal and more interest. Overpayment not allowed.
 
Switich your life insurance from BOI's own product. We pay €28 a month to cover a mortgage of 260k. Pays off mortgage with remainder going to surviving spouse. I imagine you could get life insurance for about €55 if you go to a broker.

Grocery bills seem very high. Buying in bulk and freezing meat saves a lot. As 2 adults our monthly shop, including stuff for lunches is €200. We top up by about €15 a week for fresh fruit and vegetables and milk. So that's €260 a month. I reckon if we had two kids we could keep it to €500 pm. We split the shop between lidl and tesco. Check tesco prices online and go to lidl/aldi with your shopping list and just get what's cheaper there - tesco are cheaper for some things. We could save more money on groceries if we bought own brand food and toiletries but we don't.
 
Phone bills: Vodafone do line rental, 8Mb broadband and all local and national landline calls for €45pm. For PAYG mobiles I think Tesco are the best value as they double any credit you purchase.

Groceries: we (with 3 kids) aim for around 600pm, but thats with one of us at home and the kids eating lunches etc here - you should be able to get by for less.

Cars: As others have said, if its at all practical, ditch one of them - it costs a minimum of €1000 per year in tax, insurance and servicing to keep a car on the road, before you even drive it 1 KM.

Good luck, your mortgage is a real weight its true, but there's plenty of scope for reducing the bills elsewhere.
 
The Mortgage is a noose around the neck alright, and feeling heavier every day. It's a little demoralising that light at the end of the tunnel could be 30 years away. ?

Your are incorrect in your assessment. You can afford the mortgage, but through your choices of lifestyle spending you have consistently racked up other debt and it is the cost of servicing this combined with living beyond your means that has you where you are now. If you bring yourself back into budget and do the necessary adjustments to mentally get to focusing on paying back the debt with every penny you have, and you have plenty, once the short term crippling debts are paid off you can then tackle paying down the mortgage with overpayments.

The issue of why an expensive purchase was made in the light of other debts has to be tackled and other such choices such as going out for a meal once a month.

You mentioned selling the house in the original post to get rid of the problem. This will not solve the issue for you. In any case your negative equity is likely to be a lot more than you stated as I would imagine a 2006 purchase of 425K would only be worth 200K but I'm open to correction on this. A bank is not going to let you do this, not on your good income.

An interesting exercise for both of you would be to look at the credit card bills for the last year and see how much you are actually paying in interest/penalties. If you actually added up that plus the credit union loan and the car repayments imagine how much money you would have to live on each month if you didn't have those payments. Imagine then how quickly you could start to get down the mortgage and save.
 
This thread and some of the other Money Makeover ones are really annoying me.

How can someone say that €100 a month for lunch is crazy. That’s a fiver a day!

We have to have some pleasures in life. For four days a week I spend that, but on Friday normally have a nice lunch. That saves my sanity.

Also many of the makeovers forget the realities of life – this week alone I have had a €55 doctor fee, €88 prescription, taxi home from doctor as couldn’t see to get bus/drive, had to get my hair cut at €37, new glasses at €155, dry cleaning cause someone poured a pint over me at €20, broken dishwasher to be fixed at €100, new cooker switch at €50….what am I supposed to do, live in squalor…!
 
This thread and some of the other Money Makeover ones are really annoying me.

How can someone say that €100 a month for lunch is crazy. That’s a fiver a day!

We have to have some pleasures in life. For four days a week I spend that, but on Friday normally have a nice lunch. That saves my sanity.

Also many of the makeovers forget the realities of life – this week alone I have had a €55 doctor fee, €88 prescription, taxi home from doctor as couldn’t see to get bus/drive, had to get my hair cut at €37, new glasses at €155, dry cleaning cause someone poured a pint over me at €20, broken dishwasher to be fixed at €100, new cooker switch at €50….what am I supposed to do, live in squalor…!

No one I think is suggesting squalor as an option. But financial security is arguably more important for sanity. So the focus here is on reducing this stress, or financial distress. The realities of life happen, and because of this everyone should have a contingency fund to meet the unexpected such as you outline. But you cannot build a fund if you don't plan for it, and save for it. And part of planning is about having a few bob to enjoy the odd luxury. OP's ask what they can do to get out of distress, and people respond to that. Attitude is really important here, if you view it as an impostion, then you don't have to take the advice, but like everything there is a cost to doing this.
 
Turtledove, you might find this spreadsheet useful for planning. http://www.askaboutmoney.com/showthread.php?t=145557&highlight=budget+spreadsheet

This will help you get a handle on your finances.

You might also consider getting rid of homephone and using SKYPE, it's free or you can buy credit for calls to landlines. For the BB you might consider a mobile plug in. I think they start at around 20pm. Straight off that would save you 75 pm or 900 pa.
 
How can someone say that €100 a month for lunch is crazy. That’s a fiver a day!

I always find rounding thing up makes it easier to get a prespective on things....so your €5 per day is €1200 pa.....which would pay for all you "emergency spending" & still have €695 left over. It is generally these small things like papers, daily coffees etc that can add up to a huge amount, with nothing to show for it.

Also many of the makeovers forget the realities of life – this week alone I have had a €55 doctor fee, €88 prescription, taxi home from doctor as couldn’t see to get bus/drive, had to get my hair cut at €37, new glasses at €155, dry cleaning cause someone poured a pint over me at €20, broken dishwasher to be fixed at €100, new cooker switch at €50….what am I supposed to do, live in squalor…!

Many of your expenses are not essentials & if you are stuggling to make end meet you would have begged a lift from someone, only replace glasses if the othere were completely usless/broken, dry cleaning??, wash the dishes by hand.

The OP has posted on here looking for advice as they are overspending & people are taking the time to contribute some possible solutions - you offered none.

OP, I definately think you food bill is way to high, you need to cut back by planning what meals you will cook & budget accordingly. You mention about €800 on groceries, €100 on lunches & a meal out a couple of times a year - this could be halved with proper planning & shopping for bargains.

AVC's should wait until you have surplus cash - no point in saving for retirement when you are struggling day to day.

Sell the expensive car if possible

Definately fo a daily track of exactly what you spending as the little things can add up

Not much you can do about the house at the moment due to negative equity & fixed rate. But start to do your homework for when the fixed rate ends so you can be ready to do whatever is best for you at the time.

Have you cut up the credit cards?

HTH's
 
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