Well, I’m not quite as excited about writing this debt update post as I have been in previous months because December was one of our worst months for making extra debt repayments.
It was Christmas after all and with Christmas comes expense in one form or another. I took a long break from work which meant I didn’t get paid for a couple of weeks as I’m self employed and then there were Christmas pressies to buy – not that we spent too much on that side of it!
Despite our low debt repayment numbers, this is still a positive update post for us! Because both the hubby and I are pleased and relieved to have survived the festive season without having to resort to credit in any way and even had a little cash left over in our bank account. Yep – actually in the black instead of the red. That isn’t something we’ve experienced very often after Christmas!
We didn’t actually make any over payments at all in December, just a minimum payment of £247.50. This brings our debt total to £33,490.39 down from £33,737.89 in November.
Back in November, we had an awesome month for debt repayment and finally managed to clear that pesky credit card of mine that had been hanging around for the last 10 years or so. With this card gone, we now have a little spare cash each month which will be able to go towards paying off the rest of our debt along with any other money we can save or make along the way.
The plan of attack for 2014
The rest of our debt is made up of four credit cards and a bank loan. We ran into some serious trouble with these debts a couple of years ago and had no choice but to enter into a debt management plan.
This meant that the minimum repayments for each of these debts was (and still are) reduced by our creditors to a more manageable single monthly payment to a debt management agency who then distributes the payments on our behalf.
It was a pretty low point for us when things got to this stage and we needed help sorting out this arrangement so badly to take the pressure off a little. Getting scary letters from creditors every couple of days takes it toll on anyone!
There are pros and cons to entering into a debt management plan. The main positive points about doing this means that it provides valuable breathing space to get a grip on your finances and it’s also a good alternative to bankruptcy. The cons involve your credit rating taking a huge hit and it can take an awfully long time to pay back the debt in full if you only make the reduced payments.
Because we had no idea what we were doing back then, we signed up to a debt management agency which charges us a handling fee each month. We now know that there are debt management charities out there in the UK who don’t charge a fee (namely Step Change and National Debtline) and we looked at moving to them last year. However these charities wanted us to go down the route of an Individual Voluntary Arrangement (IVA) because of the extent of our debt which we didn’t want to do, so we stuck with our existing debt management plan provider. They took a lot of the stress out of being chased by creditors and for that we’re grateful.
But now we’re back in the driving seat with our finances, we intend to take over the debt management plan ourselves over the next couple of months and therefore get rid of this monthly fee which will leave us with more spare cash to put towards our debt.
So with some changes in mind, we think the best way forward is to save up spare cash at the moment until all the paperwork gets sorted out. Then we can attack our debts with whatever we’ve saved as well as increasing our regular monthly payment to what we can now afford.
We’ve set up a separate savings account and any extra money will go in there. As of the end of December, we have a total of £280 to go towards debts. This month, we have a lot of bills to pay out for (not unexpected) but we’re hoping to save a similar amount again. Watch this space!
Our ultimate financial goals for 2014
Last year, we surpassed ourselves by paying off my credit card against the odds. It’s amazing how setting goals can really help motivate and inspire us. So in 2014, we have two major goals that we’re working towards:
- Reduce our debt down to £20K from just over £33K now.
- Save more for retirement.
Reducing our debt down to £20K would be pretty awesome and we’d be halfway there to achieving debt freedom! (Consumer debt at least). This means we’ll have to save and make a LOT of extra money this year. We’re not sure yet how we’ll do this exactly but we want to take on more side hustles, save more on our basic expenditure and keep on selling anything that we can do without. We will be trying our hardest to make this happen!
Our only retirement fund is tied up in a rental property (which is mortgaged) and we’ve yet to see a return on our investment. It’s a long term plan but even so, the property isn’t worth a fortune so we don’t expect too much from it.
We need to be thinking of other ways to save for retirement too – tricky considering our priority is debt payoff. But we need to think of our future selves more than ever so this also needs to be a priority even if we can’t spare much money for this at the moment.
What’s your ultimate financial goal for 2014?
I’ll be back on Friday for my regular blog roundup feature – Friday’s Fab Links!
- October 2013 Debt Repayment Update
- Keep Calm and Carry On! Part 1
- The Gift of Debt: A Taste of Freedom
Image courtesy of freedigitalphotos.net - Graph With Pound Symbol by sheelamohan