DEBT ADVICE
Question
Help! My husband and I have dug ourselves into a financial hole. With spiralling bills, the rising price of our weekly shop and increasing interest rates that have pushed our mortgage almost beyond our budget, things are close to breaking point. On top of this our two children who are both in primary school seem to continually need handouts for various school trips, activities, not to mention buying them shoes and clothes. It feels as if we are constantly paying out money and are losing control of our finances. How can we get a control of our outgoings and sleep at night without worrying about paying our mortgage and bills?
Answer
There is always a solution no matter how grim things may appear to be. I empathise with your situation but you are not alone. In your case, you really need to plan a strategy a budget. There are going to be costs that have to be paid hail rain or snow. Identify these in the first place. Things like the school trips you have no choice but to pay unless you deprive your child of these educational experiences. Clothes and shoes are also a must but perhaps you don't have to buy Juicy Couture apparel or the latest iPhone for them. Remember also to guard your good name. Missed mortgage payments, or any loan payments for that matter go against you, the Irish Credit Bureau in Clonskeagh file all missed payments, bad debts and judgements. Once you are recorded, it is extremely difficult to obtain credit elsewhere this is why the sub-prime market flourished and you know what happened there.
You have to think positive if you cannot reduce your costs, you have to earn more money. Part of those reductions might be to examine all debts, are you availing of the best interest rates ? Would it help to re-structure your mortgage or other loans on an interest only basis if it is currently on a capital and repayment loan, you could save up to 35% of your normal monthly repayment by swapping to an interest only loan even if the term of the interest only period was sufficient to see your children into 3rd level education. Perhaps any short term debt could be consolidated into a longer term structure the disadvantages would be far outweighed by the positive cash flow. You could also review all your insurances, life, health and home. Start a savings plan too there are some fantastic savings products out at the moment. Regular Saver accounts offer over 7% if you agree to save up to €1000 per month for 24 months. Email me for details. A Rainy Day Fund (RDF) is essential for your family for three reasons. 1. Emergencies your washing machine breaks down 2. Sudden loss of income / rate increases 3. Investment opportunities you will always need seed capital. Imagine next door comes up for sale at 50% of the value half price, the first thing you need is the 10% deposit if you have not got it, you cannot bid. Hence the need to have a nest egg stashed away.
I would suggest you should have between three and six months annual income in an RDF so that you ALL can sleep more easily at night. A good adviser can also help with that sleep.
John Lowe, Fellow of the Institute of Bankers, is managing director of Providence Finance Services Ltd Stillorgan & Drumcondra and author of the best selling The Money Doctor Finance Annual 2008 and his latest book 50 Ways to Wealth (also Gill & MacMillan) For newsletter tel +353 278 5555, email jlowe@providence.ie or info@moneydoctor.ie
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