# Help with large amount of debt



## hulmtp (13 May 2008)

Age: 35
Spouse’s/Partner's age: 

Annual gross income from employment or profession: €54,000
Annual gross income of spouse:

Type of employment: Civil Servant

In general are you spending more than you earn or are you saving? Spending more than I earn

Rough estimate of value of home 300,000
Amount outstanding on your mortgage: 285,000
*What interest rate are you paying? 5.6% (fixed until Sept 09)*

Other borrowings – car loans/personal loans etc

Bank Loan - €20,000 - paying €600 pm
CU Loan - €18,000 - paying €480 pm

Do you pay off your full credit card balance each month? No
If not, what is the balance on your credit card? 

(1) €10,000
(2) €15,000

Savings and investments: €5,000 in CU - loan against it

Do you have a pension scheme? just work pension

Do you own any investment or other property? No

Ages of children: None


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

Any suggestions on how I can improve my debt situation?


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## sam h (13 May 2008)

When did you purchase you home ? Is the value you have given current market value or what you paid for it?
I reckon you are going to have to talk to someone in MABS as it appears your debt swallows your salary before you even put food on the table!
Simple ways to increase your income would be:
- 2nd job
 - Rent a room or 2 even
 - Sell your car and/or any decent assets you have
 - Cut expenditure to the bare bone (that means every cent would have to be accounted for)

But the above may not be enough - as I said, talk to MABS.

I'm sure some more financial savvy people will be able to give you more guidance


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## hulmtp (14 May 2008)

Thanks for that.

It's the current market value of the house - it cost €315,000 when I bought it in 2006.

I have cut back on spending - ie I spend nothing!  I am currently looking for a 2nd job.   And I think I will have to rent out a room also.  Hopefully this will sort things.

Thanks for the suggestions!!


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## jhegarty (14 May 2008)

Do you mind me asking how the debt was run up , was it just spending or something else.... because there this may need to be taken care of first....

Also have you kept all of your loan payments up to date ?


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## Bronte (14 May 2008)

Can you cut up your credit cards to stop you buying.  This is the most expensive debt and should be tackled first, maybe switch to one of those interest free cards for 6 months to help you get started.


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## hulmtp (14 May 2008)

Unfortunately the debt is as a result of just spending too much for the last number of years.

I haven't missed any loan repayments.  And I no longer use the credit cards.  I must look at getting a 0% credit card - because at the moment I'm just paying the minimum every month.


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## ClubMan (14 May 2008)

Have you contacted _MABS _as suggested earlier?


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## hulmtp (14 May 2008)

No I haven't contacted MABs yet.  I suppose I was hoping that I could get myself out of the mess without having to contact them.  I have had a look at their website though which has been useful.


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## so-crates (14 May 2008)

You earn €54,000 per annum and you owe (excluding mortgage) €63,000. What proportion of each months pay goes into servicing that debt? Are you paying minimum on your credit cards? Have you worked out how long it will take to repay the CC debt with the repayments you are making? How much time is left on the two loans that you have? Basically at the moment, how long will it take you to get clear of this debt servicing it at the rate you are servicing it, I am assuming from your saying that you have cut back that you are paying off as much as you currently can. Assuming that you manage to get a second job and that you get in a tenant, how much extra from this can be used to clear the debt and what will be the time impact of this?
I think it is foolish not to contact MABS to be honest. It sounds like you are trying to do everything right and there is no reason why you can't succeed at it if you are disciplined but it will take you quite some time to clear this, it is a long road and it may help to sit down and talk out your approach with someone face to face, they may not need to take any action (as it doesn't seem you are missing payments) but they may be able to advise and inform your approach and even confirm that you are on the right track.


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## bamboozle (14 May 2008)

If you have a car, sell it if possible or if u need to run a car down-grade, walk or cycle as much as possible to avoid bus/dart/petrol expenses, bring homemade lunches to work, don’t buy coffees/tea etc during the day.]

Would you consider renting out your house and either rent a room elsewhere or move in with family, 6-12 months without mortgage repayments would help in a big way or if you’re not willing to rent out the house at least rent out spare bedrooms…

Cut up your credit cards immediately….

Cancel monthly plan for mobile… cancel NTL & Broadband….give up the booze and if a smoker quit

Best of luck!!!


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## Purple (14 May 2008)

You owe over 7 times your yearly income. That’s a very large amount of debt. 
Have you calculated what you will earn from a second job and renting our a room?

Remember that under the rent a room scheme you can earn up to €10’000 tax-free whereas you will be taxed at your marginal rate on income from your second job.


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## hulmtp (14 May 2008)

Thanks very much for all your suggestions. I think I will contact MABS and see what they have to say.

Approximately 40% of my monthly pay go towards my debt (in addition to my mortgage). I am paying the minimum only on my credit cards and haven't worked out how long it would take to pay (I'm assuming a long time!). I have approximately 2 years and 3 years left on my loans. To date I haven't missed any payments on anything and I'm hoping to keep it that way. Any money from a 2nd job and getting a tenant would go to paying off the debt.

I don't have a car, I use an annual train ticket. I am currently bringing lunches, I quit smoking 3 months ago and might have one bottle of wine a month, so I really have cut down on expenditure.

I am aware that it's a very large amount of debt - thus my problem!!!!  Getting taxed on everything I make on a second job won't be ideal but at least it'll still be extra money!  I've sent off some CVs today to a couple of places looking for weekend staff.  Rooms in my area are going for about €400 a month, so that'll also be a help.


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## so-crates (14 May 2008)

I'm not surprised you are paying so much out! 

Right, I am guessing that the rate on your CU loan and your bank loan is lower than your CC loans? I am wondering would it be worth your while perhaps negotiating a longer term on your CU loan so as to reduce payments on that and put the difference into the CC? I know that it means you pay more on your loan and without the rates it is a bit hard to work out for sure but I think it may be cheaper in the long run to pay the CC preferentially. 

The more lumps you can knock off that the better, are they both at the same rate?

Also it may be worth investigating if you can negotiate a month or three break from repaying on one or both loans and putting that €1000 pm straight towards paying the CC debt off. Again the cost would be paying more overall but it would probably be cheaper still than what your credit cards are costing you.


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## DrMoriarty (14 May 2008)

Sounds like you're taking steps in the right direction. Give yourself some credit (no pun!) for that, and do go to MABS.
I also agree with what so-crates says about prioritising the CC debts.

A lot of this stuff is a bit naff, but some of the articles might be useful to you: [broken link removed]


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## Murt10 (14 May 2008)

As far as I know the Civil Service Credit Union gives loans of up to 5 times your shares so you might want to look at that for starters.

Also, who have you got your CC with and what APR are they charging you. 

If it's MBNA its just a simple matter of ringing them up and asking them to put you on their lower rate of interest which is less than 10%. It's as simple as that. 

Two friends of mine did that. One was changed immediatelt, the other had to kick up a bit of a fuss, they then offered him the lower rate for 12 months, but he insisted and they made the lower rate permanent. 

Once you have done this switch to one of the zero rate balance transfer companies. don't run up any additional debt on the new cars as this will attract interest immediately, just concentrate on getting your balance down.


Murt


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## astraclub (15 May 2008)

i say you are grant if you can do two things cut by any means (friends, relatives):0---

--Pay off credit card as soon as possible
--pay personal loan 


look for a part time job ....
leaflet distribution, homedelivery of food etc.
good money in them and easy to get these jobs


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## dtlyn (15 May 2008)

hulmtp said:


> Thanks very much for all your suggestions. I think I will contact MABS and see what they have to say.
> 
> Approximately 40% of my monthly pay go towards my debt (in addition to my mortgage). I am paying the minimum only on my credit cards and haven't worked out how long it would take to pay (I'm assuming a long time!). I have approximately 2 years and 3 years left on my loans. To date I haven't missed any payments on anything and I'm hoping to keep it that way. Any money from a 2nd job and getting a tenant would go to paying off the debt.
> 
> ...


 
I've been reading these money makeovers for a while now. Is there a particular reason why you rarely see downsizing suggestions?

There seems to be a large gain here by selling up. 

Say it costs 5k to sell the house and you get 300k for it, that's 10k after the mortgage is cleared - use this to pay off the first credit card ( highest interest card ). 

With no kids or spouse ( I assume?? ) why not rent somewhere ( you'd get somewhere one bed nice for 800 - 900 )

54,000 is about 3000/month after taxes and pensions etc

900 - Rent
600 - 20k Bank Loan
480 - Credit Union 
----
1020 - Remainder. 

Investigate the possiblity of a better rate on your remaining card by contacting your card company, also investigate the possiblity of 0% balance transfers to give you a bit of leway. 

Put 300/month extra off the remaining credit card and live frugally with 680/mo. ( possibly supplimented with the 2nd job ).

Thereafter, As soon as CU gets below your 5k savings, pay it off immediately. 

In 3 or 4 years you could be totally free of that CC debt, with better options to tackle the CU and the bank loan. 

Possibly look again at your own home in a few years, with hopefully a favourable market on your side. 

Further to this option of selling up, repairs, upkeep and utility expenses will be reduced, freeing up cash for debt management.


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## jhegarty (15 May 2008)

dtlyn said:


> I've been reading these money makeovers for a while now. Is there a particular reason why you rarely see downsizing suggestions?




The OP is on a fixed rate until Sept 09 , so may be hit with a large penalty if they sell now....


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## dtlyn (15 May 2008)

jhegarty said:


> The OP is on a fixed rate until Sept 09 , so may be hit with a large penalty if they sell now....


 
Define large penalty?


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## so-crates (15 May 2008)

several thousand euros which they would have to stump up, given that house price trends appear to be downward, their chances of having any surplus from selling the house is relatively low (as it is relatively new bought). They may even find themselves not being able to sell it for enough to cover the costs.

I would agree with jhegarty, had the same first thought as you, why hang onto an asset that is difficult to afford but then saw  the fixed penalty and realised it probably wouldn't be beneficial.


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## dtlyn (15 May 2008)

so-crates said:


> several thousand euros which they would have to stump up, given that house price trends appear to be downward, their chances of having any surplus from selling the house is relatively low (as it is relatively new bought). They may even find themselves not being able to sell it for enough to cover the costs.
> 
> I would agree with jhegarty, had the same first thought as you, why hang onto an asset that is difficult to afford but then saw the fixed penalty and realised it probably wouldn't be beneficial.


 
Is an asset thats difficult to afford really an asset? 

I guess we need to fill in the unknowns here to make a positive call. 

Freed up monthly income = ( ( Mortgage + Upkeep + Household Bills +
                                        Life Insurance + [Mortgage Protection] ) - 
                                       ( Rent + Apt Bills ) )

Assuming 

Sell Price ~= ( Fixed Penalty + Sell Costs + Remaining Mortgage ) 


In the long run freed up monthly income paying down debt may be worth the hit in a fixed penalty, but I'm inclined to agree with on intuition you that filling in those blanks would be a lot of work for minimal gain.


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## so-crates (15 May 2008)

The asset is still the asset, it is the debt that is difficult to afford


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## dtlyn (15 May 2008)

so-crates said:


> The asset is still the asset, it is the debt that is difficult to afford



....which makes the asset a liability.


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## so-crates (15 May 2008)

No, not true, the debt is the liability.

Your asset: dwelling
Your need: Finance to pay for said dwelling so that prior owner will sign over the asset to you
Your liability: finance owed to bank
Your negotiating tactic to obtain said finance: 
1) a promise to repay the amount borrowed plus a cost of borrowing (interest) over a term
2) a promise to allow the bank to take control of the asset if you renege on your repayments in return for their returning interest in the property to you once you have discharged your debt.

Bank's asset: your mortgage
Bank's security: your agreement to mortgage your property and your deeds
Bank's liability: to whomever they have "borrowed" the money from, be it other lenders or their own depositors.

The asset remains an asset at all points, your liability is the mortgage debt; that is the millstone.

Mortgage finance arrangements were originally limited to a very select group of people - those who held assets basically. You still need to "own" an asset to get a mortgage, hence the property is yours (or rather the bank agrees to give you your property back if you pay up cos you only have it all to yourself fleetingly, blink and you've missed it!) but the bank holds a metaphorical gun to your head by holding the evidence of ownership and the evidence of the agreement to relinquish your right to your property in the event of default.

At least that is my understanding!


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## dtlyn (16 May 2008)

so-crates said:


> No, not true, the debt is the liability.
> 
> Your asset: dwelling
> Your need: Finance to pay for said dwelling so that prior owner will sign over the asset to you
> ...


 
Yes but if 

Asset = sum(Liabilities on Asset) + Equity ( 300k - 285k = 15k )*

*Assuming no loans secured on equity. 

And you can pick out the following liabilities

House Value Depreciation ( current climate )
Mortgage Interest
Upkeep
Household Bills
House Insurance
Mortgage Protection Insurance

(Management Fees)

Then where is the Asset in this instance? 

I would argue that in this case the percieved Asset is a Liability.


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## so-crates (16 May 2008)

Honestly, is what your are saying of any point or relevance to the OP? 
You pointed out that the option of downsizing should be considered by the OP, jhegarty indicated that the reason it may not be viable for the OP is that they have over a year left on a fixed term and would be penalised for paying off early. Added to the current housing market and the costs of the transaction, it makes it far less palatable to consider at this juncture. That is the important discussion, everything else is simply semantics and of little value to the OPs plight from what I can see. 

Also if you are going to argue (your wording) about assets and liabilities at least don't randomly lump in current and capital together!


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## dtlyn (16 May 2008)

so-crates said:


> Honestly, is what your are saying of any point or relevance to the OP?
> You pointed out that the option of downsizing should be considered by the OP, jhegarty indicated that the reason it may not be viable for the OP is that they have over a year left on a fixed term and would be penalised for paying off early. Added to the current housing market and the costs of the transaction, it makes it far less palatable to consider at this juncture. That is the important discussion, everything else is simply semantics and of little value to the OPs plight from what I can see.
> 
> Also if you are going to argue (your wording) about assets and liabilities at least don't randomly lump in current and capital together!


 
I'm not arguing with you, i'm being merely curious. 

You are right though, i'll break this off into another thread. Aplolgies for moving off topic.


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