# V little disposable income, no savings



## lone_merchant (10 Oct 2019)

Age: 38
   Spouse’s/Partner's age: 36

   Annual gross income from employment or profession: 45.5K
   Annual gross income of spouse: 18K

 Monthly take-home pay: €1026 (part of budget plan in credit union, mortgage and some bills taken at source)
Spouse: €1250

   Type of employment: e.g. Civil Servant,  self-employed: Public Servant 

 In general are you:
 (a) spending more than you earn, or - breaking even
 (b) saving? - no savings

   Rough estimate of value of home: 270K
   Amount outstanding on your mortgage: 203K approx
*What interest rate    are you paying? - think 3.99% with Ulster Bank, 7 Year Fixed Rate, started 2017, 28 years*

   Other borrowings – car loans/personal loans etc
ME: Credit Union loan - 11,800 - repayments deducted at source (payroll)
Owe parents approx. 14K due to loan for purchase of house - I repay €260 p/mth

SPOUSE: Credit Union loan - 10.8K - repay €300 p/mth
Car loan PCP: €300 p/mth

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

   Savings and investments: - No savings scheme

   Do you have a pension scheme? - Both of us have pension through job

   Do you own any investment or other property? - No

   Ages of children: 4

   Life insurance: €55 p/mth

We're left with very little disposable income at the end of each month.  We don't save as we have nothing to save.  We're habitual borrowers, instead of trying to save we borrow.  Our total loan repayments each month is approx. €850, not including car finance.
I'm looking for advice on how best to manage the loan debt, consolidate loans into one loan?  Look at switching mortgage?  I don't know much about switching mortgage, maybe this would reduce our monthly mortgage amount but the breakage fee with UB may be high.
Any advice would be welcome.


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## Brendan Burgess (10 Oct 2019)

The first thing to do is to get a quote from UB for the break fee. 

3.99% is very high and you could refix at 2.4% for two years without the hassle of switching lenders. 

Is the life insurance separate from the Mortgage protection policy? If so, and you are both healthy, you should scrap it.  You need to deal with the actual problems you are facing today rather than the small risks of something happening. 

Also check how much you are paying for the mortgage protection policy. Could you get it somewhere else cheaper? 

Credit Union loans are very very expensive especially if they require you to keep money on deposit.  Could you ask your parents if you can take a payment break to try to clear the credit union loan?   Or to save up the money for the break fee on the mortgage. 

It's not unusual to have high loans and be under financial pressure after buying a house.  If you target the expensive loans and budget, you should be able to get it under control as you have a combined income of €63k.

Brendan


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## RedOnion (10 Oct 2019)

The break fee for UB is capped at 6 months interest, so 4,060 approx.
By switching to current rates you'll save 15k in interest over the next 5 years.


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## Laughahalla (10 Oct 2019)

Make yourself a promise never to borrow again. If possible I'd avoid consolidation of the consumer debt. There is a clue in the name.. *Con*solidation. It's a con unless you change your behavior.  You need to be able to say *No* when you get an urge to spend.

Like mentioned above, investigate if you can get a lower rate on your mortgage but this might be difficult with the consumer debt you have.

Make a weekly budget and agree with your spouse that nothing gets bought if it's not in the budget for that week.
Maybe look at selling the car/cars and buy a cheap run around instead. You don't need a new car. Your certainly don't need the car payments.
*Lots of people fall into the trap of buying things with money they don't have to impress people they don't even know or like.*

Can either or both of you do extra hours - 
Bring your own lunch to work if not already doing that .
Change your Electricity and Gas supplier every year.
Shop in the German supermarkets - You will save about 20% on your grocery bill.


I follow Dave Ramsey's baby steps - It works as long as you do this in order. You can find his radio show online. If you follow his simple advice(Same advice your grandmother would have given) it will change your life. Seriously. Just make sure you get the wife's buy in if you decide to try it.



_Baby Step 1 – €*1,000 to start an Emergency Fund*_
_Baby Step 2 – *Pay off all debt using the Debt Snowball*_
_Baby Step 3 – *3 months of expenses in savings.*_
_Baby Step 4 – *Invest 15% of household income into retirement*_
_Baby Step 5 –* College funding for children if applicable*_
_Baby Step 6 – *Pay off home early*_
_Baby Step 7 – *Build wealth*_
*Steps 4,5 & 6 can be done at the same time.*

Good luck .


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## Brendan Burgess (10 Oct 2019)

Laughahalla said:


> _Baby Step 1 – €*1,000 to start an Emergency Fund*_
> _Baby Step 2 – *Pay off all debt using the Debt Snowball*_
> _Baby Step 3 – *3 months of expenses in savings.*_
> _Baby Step 4 – *Invest 15% of household income into retirement*_
> ...



Most of this does not apply at all to the OP at this stage in their financial journey.

They have heavy debt so they should pay it down rather than having an Emergency Fund.  They have helpful parents if there is an emergency. 

Likewise, they do not need to build up 3 months' expenses in savings.  You are effectively recommending them to borrow expensive money to put on deposit at 0%? 

They have pension funds through their employers so they are probably doing Step 4 anyway.

They should not be thinking about college funding for a 4 year old. They should be paying down their debt as a priority.


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## Laughahalla (10 Oct 2019)

Hi Brendan,
These are steps , 1,2,3 to be done in order. 4,5, & 6 can be done at the same time
The 1k starter emergency fund is just to get into the mindset of paying for little emergencies with cash rather then borrowing. Money management is 80% behavior. They need to break the borrowing mindset.

We don't know the financial position of their parents. They could be broke, they may have even borrowed to give them a loan.
And anyway, borrowing from family changes the relationship. Christmas dinner just doesn't taste the same when you are sitting across from someone who you owe money to.

Paying down consumer debt is in *step 2*. This is the key.
Once this is paid down they will feel like they got a pay raise.
Pay off debt smallest to largest.  Small wins will encourage them to continue onto the next debt in line. (small wins are more encouraging) even though mathematically you will pay less interest tackling the highest interest rate loan. Small wins help with motivation to continue paying down debt.


*Step 3* (expenses fund) saving only begins when they have the consumer debt paid off. This is to keep them going in the event of a job loss or some other event. 3 months expenses saved will cover their mortgage , food, transportation  and other basic household bills while they get back on their feet.
Having an emergency fund will keep them from drifting back into debt. They will have it in cash. Having cash in the bank at 0% is better than having debt owed at 8%.

I misread the children bit - I read it as 4 children, not 1 child aged 4. Still doesn't make me change my advice. A small amount of money put away from the age of we'll say 10 will cover education costs in the future. They may or may not have the means in the future to cash flow college.

The OP either needs to reduce outgoings or increase income. Moving around numbers and consolidating might make then feel like they are doing something but they won't really be, especially if they borrow more after consolidating.


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## Brendan Burgess (10 Oct 2019)

Laughahalla said:


> A small amount of money put away from the age of we'll say 10 will cover education costs in the future.



This illustrates how inappropriate Ramsey's steps are for the OP.

A small amount of  money put away will also clear debt. 

It is much better for them to have cleared their expensive debt than to be in a position where they still owe the credit union €30k but have an education fund/emergency fund/savings fund of €20k. 

*Never borrow money at high rates to put it on deposit at 0% 

Brendan *


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## sputnik1 (10 Oct 2019)

Hey Lone merchant,
After buying or building a house, as Brendan pointed out, things can be strained financially. I know it certainly was for myself and my wife.

What has worked for us is to list out the biggest outgoings each week starting with the biggest value. 
Even a small % change to the biggest outgoing (in your case the mortgage) can have a big impact on your monthly disposable income. 

If I were you, and feel free to ignore me, I would as soon as possible pick up the phone to UB and ask if they can do anything with the rate and say you are looking at switching to another bank or potentially breaking the term. 

Then work your way down the list assigning an action to each. One action per day or two a week. It helped me focus on one item and action. Instead of being overwhelmed by the enormity of all the outgoings

Best of luck,


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## Laughahalla (10 Oct 2019)

Brendan Burgess said:


> This illustrates how inappropriate Ramsey's steps are for the OP.
> 
> A small amount of  money put away will also clear debt.
> 
> ...


Hi Brendan,
Take another look at what I wrote again. I am saying to only put away money for education when the debt is paid off. It's in Baby steps 4,5 and 6


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## Brendan Burgess (10 Oct 2019)

Hi Laugh
He has an immediate problem with €35k of expensive debt + a PCP.

You should not be taking the focus off this with a confusing list of steps to take and attributing them to some supposed expert.

Brendan


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## cremeegg (10 Oct 2019)

sputnik1 said:


> pick up the phone to UB and ask if they can do anything with the rate and say you are looking at switching to another bank or potentially breaking the term.



+1

Do this tomorrow.


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## Laughahalla (10 Oct 2019)

Apologies if it seems complicated. It really isn't.
I was in a similar debt position to the OP so this is why I'm passionate about it. There is no quick fix. It takes time and effort.

Following the steps above I was out of debt except for my mortgage in less than 2 years.
During that time ..
I changed mortgage provider and got some cashback that went straight towards debt.
No family holiday.
I learned to say no to trips away and eating out/take aways. 
I also sold as much "stuff"as possible online. 
OP , think seriously about selling the car or handing it back. You'll get a cheap run around that will keep you going until you get back on your feet.

Good luck.


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## lone_merchant (11 Oct 2019)

Thanks everyone for your replies, it's very much appreciated!

To answer some of your questions/comments.

I need to double check the mortgage interest rate.  If the breakage fee is €4k, it'll be out of the question to switch mortgage provider even though my monthly amount will be reduced.  I will contact UB anyway and see what they have to say.

My parents got a credit union loan to help us out, so a payment break from that loan wouldn't be possible.  They're both retired and couldn't put that pressure on them.
Would it even be worth it to consolidate that loan into my own loan?  The monthly repayments would be less but will probably extend the term.

Extra hours in my job isn't possible.  I'm in the stages of going for promotion but currently acting in the job so if I get it my salary won't go up.  My wife can do extra hours from time to time.


We've reached a point now where we've said we won't borrow again.  I'm 38 now, I got my first loan when I was about 22 and haven't been out of debt since.  It's sickening when I think about it.

I don't think it's as straight forward getting rid of the car as it's on PCP.  We have a debt there that needs to be paid.

I'll definitely take a board some of the suggestions above.  We'll really watch how every cent is spent!

Thanks again!


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## Blackrock1 (11 Oct 2019)

lone_merchant said:


> Thanks everyone for your replies, it's very much appreciated!
> 
> To answer some of your questions/comments.
> 
> ...



if the breakage fee is 4k you could have it added to the new mortgage


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## Bronte (11 Oct 2019)

lone_merchant said:


> I need to double check the mortgage interest rate.  If the breakage fee is €4k, it'll be out of the question to switch mortgage provider even though my monthly amount will be reduced.  I will contact UB anyway and see what they have to say.



I can't believe you managed to get your parents to borrow to loan to you.  And they are struggling !

And I totally do not understand why you fixed two years ago nor why you dismiss the option of breaking out and having a lower repayment.  You do realise you add the 4K breakage to the new borrowings.  And when your repayments are less you pay off your most expensive debt first.


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## RedOnion (11 Oct 2019)

Bronte said:


> I totally do not understand why you fixed two years ago


It was possibly the right thing to do at the time.

Buying a new car they can't afford is what you should be questioning!


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## Bronte (11 Oct 2019)

lone_merchant said:


> Monthly take-home pay: €1026
> How much goes to the credit union
> Spouse: €1250
> How much is the child allowance
> ...



Income 1026+1250 = 2276
Costs 260+300+300+55 = 915. Leaves you 1361 for food utilities. And you said debt repayments were 850 a month without car, but I've added it up to 615?
Mortgage 203K    CU1 -  11K       CU2 - 14K          CU3 - 11K              Car PCP - ??  not mentioned Total 239 K

What else are your outgoings. What interest rate is on all debts, how much is in each credit union that belongs to you or your wife.


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## Bronte (11 Oct 2019)

RedOnion said:


> It was possibly the right thing to do at the time.
> 
> Buying a new car they can't afford is what you should be questioning!


Well I missed the new car !

I can't make head nor tail of the figures.


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## Bronte (11 Oct 2019)

lone_merchant said:


> We've reached a point now where we've said we won't borrow again.  I'm 38 now, I got my first loan when I was about 22 and haven't been out of debt since.  It's sickening when I think about it.



With the vague way you've approached this I'm not surprised.  What did you do with all the debts from the ages of 22 until the age of 36 when you bought the house?  Something wrong with being constantly in debt for nearly 2 decades with nothing to show for it.  At least you have a house.  What were all the borrowings in the 3 credit unions for?  

When your parents borrowed from the CU for you what reason did you give them? What did you do with the money.  

You need to be honest on here if you expect to get proper advice.


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## RedOnion (11 Oct 2019)

@lone_merchant 
Assuming you're jointly assessed for tax, your net income is about 4,400?

On your income, with 1,000 per month mortgage payment you should be able to have a comfortable lifestyle. But the past borrowing for a lifestyle you simply can't afford is the issue.

Can you outline all the borrowings properly : balance, interest rate and amount you are repaying monthly? Include the PCP and loan in your parents names.

The first thing you need to do is work out a monthly budget for everything and stick to it. If you can't afford something, wait til you can. If it's something you must have them fund something else to sacrifice. The budget facility from credit union is great but has an effect of detaching you from your finances. You don't know how much everything is costing you.

There's potentially a way to get you enough breathing space here to repay your parents loan so they're not stretched, but I need the loan info above.

Also, do you both have spotless credit records?


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## HollowKnight (11 Oct 2019)

Would suggest at the end of PCP monthly payments to give back the car. Instead of paying final balloon payment or rolling to new car, pay cash for an old car. Doesn't look like you can afford a 36000 car (over three years).


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