Plan of Attack #1

I have been thinking about how I am going to achieve debt freedom and there are two methods of doing so.

1.) Increase Income
2.) Decrease Expenditure

For this post, I am going to focus solely on the latter as I think that it is pointless finding ways to bring in extra money, if I am not in complete control of my current income and expenses.

In my last post I detailed where my credit card debt had come from; I was shocked by just how debt I had racked up on everyday living expenses such as groceries and petrol. This has shown me just how important a budget is.

Secondly, I clearly have no concept of how much disposable income I have to pay for luxuries and instead have paid for whatever I wanted on the credit card, rather than adopting the sensible attitude of "I want that, I don't need it. Can I afford it? No, then I can't justify it."

So, I am firstly going to take the following steps:

1. Create a monthly budget
2. Calculate my disposable income
3. Start a spending diary
4. Review my fixed expenses and see if there is anyway I can decrease them
5. See if I can minimise my variable expenses ie. Food/Fuel

Why am I in Debt?

As of today, I have 3 forms of debt around my neck - a loan and two credit cards. In total, these are just shy of £10,000. Yet the only debt I can reliably explain is the loan, which now has a balance of 'only' £5,096.37.

So how I find myself in almost double that? I have nothing to show for it.

In order to completely understand my financial situation and change my mind-set towards debt positively and permanently, I decided to undertake the depressing task of analysing where this debt had come from.

Debt #1 - The Loan

This is the easy one, in April 2013 I had a car accident which saw my car being written off. Luckily the accident was fully covered under my insurance, unluckily I had unpaid finance.

After receiving the insurance pay out and settling the outstanding finance, I found myself in a deficit of £500ish (it could've been a lot worse!). However, at that time I was commuting to work and my daily round journey clocked up 160 miles! I found myself without a car, and with no savings to buy a new one.

Sensibly, I decided against another round of car finance - I had learnt my lesson from the car I'd written off - the interest was ridiculous and I was paying £180 per month for 5 years which resulted in me paying over £10k for a car marked up at £6,500 when I purchased it in 2010.

Instead, I decided to take out a loan: my bank could offer me £8,000 with an APR of 6.4% over 36 months. Unsensibly, I opted for this amount and purchased my new car for £5,000; I used the remainder to clear the finance deficit and to pay for tax for the year. The rest, unfortunately was squandered and I have no recollection of what on!

Debt #2 - Credit Card (I have transferred some of this onto a 0% deal so now have 2 cards but am not paying interest on a chunk)

I've analysed my spends on this card for the past year (as far as online statements will allow). To be honest, the results are shocking:

Cash	£1,250.00
Clothes	£127.54
Debt	£2,405.97
Dog	£74.59
Fee	£66.37
Gift	£1,365.71
Groceries	£279.14
Home	£689.12
Insurance	£384.27
Interest	£621.44
Ipad	£223.00
Misc	£11.94
Petrol	£321.67
Subscription	£89.94
Takeaway	£31.30
Travel	£39.40
	£7,981.40

 

 

I am absolutely gobsmacked at how much money I have wasted, and where my debt actually originates. I thought I would (ashamedly) explain these figures.

 

• Cash - £1,250.00 - I am 100% against taking cash off a Credit Card, unfortunately personal circumstances found myself and my sister on the verge of homelessness, due to my wage I am not entitled to any form of government help and so private renting was our only option. We didn't have any savings and so I withdrew cash of my card to pay for the bond and months rent up front.
• Debt - £2,405.97 - this is debt brought forward - it was accumulated by me and my ex, unfortunately when we split he refused to pay his share. I have no idea what it's for but I am lumbered with it.
• Gifts - £1,365.71 - this is horrifying, how can I justify spending this kind of money on other people? I paid £637.50 for a piece of sporting memorabilia (stupid, stupid, stupid woman!) for my ex's 30th birthday - we split before his birthday and consequently this is gathering dust in my attic. £538.16 is on various gifts for my current boyfriend for valentines day/Christmas. £148 was for a bracelet for my sister's 21st bithday
• Fees & Interest - £450.64 - money down the drain.
• Home - £689.12 - we  needed a lot of things when we moved into our flat, the most expensive item was my bed but we also needed crockery, iron & ironing board, pots and pans, curtains, towels etc etc.
• Groceries & Petrol - £600.81 - absolutely should not have been paid for by Credit Card, must be covered by monthly budget.
• Ipad - £223.00 - I can't justify this, it was a reckless and unnecessary purchase, the only saving grace being that I will get a considerable amount of use out of it when I resume studying in September
• Insurance - £384.27 - My car insurance for the year, it made sense to me at the time - no monthly DD, however, I know that this should've been budgeted for and paid out of savings.

 

I feel completely and utterly ashamed by this breakdown, I have been an absolute idiot where spending is concerned. This will stop here.

My Debt Confession

I confess, I am in DEBT. I am a twenty-something, with no cash in the bank, living out of my brother's spare room with nothing to show for the mountain of debt I am in except for the direct debits totalling £435.53 a month leaving my account and paying off whatever the hell it is I've bought.

I've had my lightbulb moment, it's time for a change.

I've been lurking in the blogosphere for some time now, reading PF blogs and feeling inspired, promising myself a new start and that I will make the change but the truth is I'm still in debt. I am well and truly In The Red.

I  have decided to try a new approach; new blogs on the subject of debt are popping up here, there and everywhere - with the bloggers success clearly visible for readers to see, if it's keeping them motivated and on the straight and narrow, perhaps it will do the same for me? I can only hope.

So here goes, my 18 month journey towards financial freedom. My 18 month effort to leave behind Miss In The Red, and become Miss Financially Stable.

18 months of saving and debt repayment.

By December 2015, I WILL have control of my finances. My debt WILL be almost, if not completely non-existent. I WILL have money in the bank towards my dream of homeownership.

What does this entail?

Paying off my debt, having money saved and leading an all round, more frugal lifestyle.
It's time for a complete life overhaul.

Debt Breakdown:

Loan	£5,096.37
Credit Card #1	£1,875.00
Credit Card #2	£2,957.33
	£9,928.70

Thank you for reading, I hope you'll stick around.x