Today is a momentous occasion for Dave and I.
Today we are debt free – Aside from our mortgage, a necessary debt really!
Dave and I have had credit card debts/car finance/loans for the whole of our relationship and most probably the whole of our individual adult lives.
How did we get into debt?
Zoom all the way back to 2003. I was 18, got a job at a bank, had to have a bank account with said bank and along with it they gave me a credit card. With a £4k limit. It was like having extra money without having to budget.
Back then I was renting a room in a house, taking home £800 a month and paying £450 a month for my rent. I didn’t have a huge amount of disposable income and soon that credit card became a buffer for me. Each Friday night, Saturday night and sometimes other nights too I’d buy a round of drinks on it, or a meal. 6 months later I decided I wanted to learn to drive – something that I don’t regret in the slightest – but I put all the lessons on this credit card – I wouldn’t have been able to afford it otherwise. At £20 a pop it wasn’t cheap and it took me 9 months to pass my test including a 2 week intensive course of 2 lessons a day! I also put the tests (I had 3 theories and 4 practicals!) on the credit card too. Then I passed my test and the bank gave me a loan for the car and first year’s insurance. At this point Dave and I had just got together, I’d had access to credit for just over a year and had in excess of £5k owing between a loan and credit card and an income of £13k a year – at the age of 19.
Dave will always tell people that his first credit card, at the age of 18, had an £8k limit. Luckily, he was better with money than me and didn’t spend up to that limit! But he did have a car loan, and was constantly in his overdraft – £1k overdrawn but £1k in savings. A lot of people have that misconception that they should have money in savings. Yes, but not if you have debts – debts will always cost you more in interest than you’ll earn in savings interest. Free up the overdraft or credit card and then in case of emergency you can turn to those options and use them for what they’re intended for.
Dave and I were like any young couple. 19 and 22, we went on dates, went on holidays and enjoyed ourselves. We didn’t, ever, worry about money or even really think about it.
Then in 2006 we decided to take the step of moving in with eachother. We didn’t want to rent so talked to mortgage advisors about buying a house. We soon found out that a) we had more debt than we realised and b) we wouldn’t get a mortgage paying all the credit payments that we were – credit cards, car finance and a loan. So we consolidated our debts and took out one huge loan… £25k and still had another couple of grand on balance transfer credit cards too – you can only take out an unsecured loan for a maximum of £25k. £27-£28k of debt accumulated by the time Dave and I were 22 and 25.
Looking back now I am so shocked by that. I cannot believe how carefree with money we were.
But we got our house! Amazing.
We had a huge mortgage payment going out every month of £1000 plus a loan payment of about £400. We now had a house and still we didn’t think about our spending habits. We carried on buying whatever we wanted as we still had access to credit cards and we both worked, so our young, naive minds must have thought we deserved to buy a flat screen TV, surround sound, games consoles, all on credit cards. We kept having holidays too. Money never became an issue for us.
What broke the spending cycle?
The turning point was when we got engaged in February 2008. I realised we had no savings to pay for the wedding. My parents weren’t in a position to contribute and Dave’s parents were incredibly kind and paid for our honeymoon. I was 24 and I wanted a big white wedding.
How did we start to pay off our debts?
From that point onwards we didn’t go out, we didn’t buy anything and all our spare money went into saving for the wedding. I was lucky and got about £8k in bonuses that year at work but the wedding cost £15k. Somehow we managed to pay for it, keep up repayments on our debts and at no point did we add to our debt to pay for the wedding. That is something I am immensely proud of. On top of that, we went to Rome 6 months before the wedding and saved enough to pay for that too!
After the wedding we decided to move house – that we wanted to move somewhere nicer before we even contemplated children. We knew that the only way we could afford the deposit on the new house was with the equity in the house we were selling but there wasn’t enough equity to pay for all the house buying/selling fees too. We had to pay stamp duty, solicitors fees, estate agents fees and mortgage fees. A grand total of £10k that, again, we somehow managed to save in the 18 months between our wedding and moving house without adding to our debt.
But, we came to a familiar problem. We needed a bigger mortgage, and yet again we had too many debt repayments to be eligible. So yet again we consolidated everything into a loan. Yet again we were stuck with a £25k loan. But, on the positive side, that was everything this time. No more credit cards!
December 2010, 26 and 29, owing £25k.
Reading that I could cry. What a mess!
But yet again – we had our house! This house, where we live now, is our forever house. We knew that when we bought it – we are never moving again!
When we moved our mortgage went up to £1200 a month. A massive amount – basically my salary! We kept making payments into our loan and this time I knew we had to pay it off. The trouble was that we had very limited disposable income because of the mortgage. But that’s an excuse really, everyone can save money somewhere if they try hard enough. So I have spent the last 2.5years trying my hardest to pay this loan off.
I did mystery shopping, paid surveys and other market research things to get extra cash. I’d allocate money to debts as soon as our pay came in – aside from bills, paying debts became a priority for the first time in our lives. We still didn’t go out, instead we rented DVDs and cooked nice but cheap meals. I sold everything I could on eBay and used sites like MoneySavingExpert to find money making ideas and places to sell things – old phones, DVDs, CDs.
When I went on maternity leave with LP, Dave and I realised how little money we could live off – SMP really isn’t a lot!
I went back to work for 6 months in between babies and we felt rich! Having three months at the end of maternity leave with no pay meant we really appreciated the extra income and we threw as much of it as possible at our debts.
Roll forward to October 2012. Our loan was still at £18k. 28 and 31 with a 1 year old and £18k of debt.
A big chunk of the loan was paid off with a maturing work share scheme soon after, £10k gone, £8k to go.
Since then, over the last ten months I have ebayed constantly and all our spare money has gone on the loan. Somehow though, we have managed to buy a new PC, a new stereo and new sofas, without getting into more debt – as well as overpaying the loan.
And today marks the end of that loan. The end of our adult lifetime of debt.
I am so proud of us for paying it off but looking back we should never have got into that mess in the first place. Sadly, so many young people get into debt and don’t realise it’ll take them a lifetime (11 and 14 years in our case) to pay it off!
You probably have so many questions: How to get out of debt when you are broke? How to get out of debt quickly? How to get out of debt on a low income? How to get out of debt with no money and bad credit?
If I have any advice for anyone in difficult financial situations it would be:
- Talk to someone about it. A problem shared really is halved. There are debt counselling and credit counseling services you can make use of.
- Get a copy of your free credit report and see what your credit score is. There may be obvious red flags there you can make instant changes to.
- Create a spreadsheet of all your income and outgoings, what’s leftover you can spend but don’t spend any more than that!
- Focus on debt management. Always try and pay more than the minimum payment on credit card balances unless its a 0% interest rate. This will pay off the debt faster.
- Always start to pay off the highest interest rate paying debt first.
- Always pay off debts with any savings you have as the interest rates on debts will be so much higher than any savings interest you may earn.
- If you have a lot of high interest debts it may be worth using debt consolidation and turning it into a loan. Remember – with loans you can now overpay!
- Earn some extra cash – I have posts about eBay and Quidco that you might find useful.
You need a get out of debt plan and you need to work out how to pay off debts that you have. Get some debt advice and taking that first step will make getting out of debt seem like a more achievable reality.
Lastly, MoneySavingExpert has always been, and will remain, like a bible to me! Martin Lewis knows what he’s talking about and the forums can be incredibly supportive – Debt Free Wannabe, Grabbit-While-You-Can and Discount Codes and Vouchers are particular forum favourites for me!
I’m always looking for ways to save money and like to blog money saving tips when I can. If you’re interested in reading future money saving ideas please subscribe to the blog over at the side of the page.
This is not a sponsored post – just an incredibly honest one.