Debt Stories – Catherine Morgan The Money Panel
This week I am back with another debt story from a fellow personal finance blogger Catherine Morgan of The Money Panel. We got the chance to have a long telephone conversation a few weeks ago and I got a great insight into Catherine’s life and career. And like many of us in the personal finance world, she has been through financial challenges, so can write with empathy and experience. Over to Catherine.
How we got into debt
I have historically always had a bad relationship with money. It stemmed from my childhood. My parents split when I was very young and I was bought up in a conflicting world where money was the centre of it. Dad was an entrepreneur, teaching us lots of positive lessons about money. My mother, giving us all the love in the world, bought four children up by herself on a part time wage. I was petrified of having no money and wanting a lifestyle like my Dad, living in a large grand house and going on nice holidays.
As I started to earn money, I would always spend rather than save. I spent rather frivolously without paying any attention to how much I was spending. The emotional spending went onto credit cards and have no regard for what I was accumulating nor what it was costing me. My financial purchases were driven by my emotions.
The worst financial mistake that I made was in my twenties. In 2007, at the peek of the markets, we decided to move home. We really had no need to move with a perfectly adequate home. We borrowed £20,000 on an unsecured loan to pay for solicitor’s fees and repay credit card debts and maxed out on a new-built home with a 90% mortgage. Nobody knew that the financial markets were teetering on the edge about to crash.
In 2008, just as the markets came down, we moved out to Jersey in the Channel Islands to seek further adventure in our careers. We rented our home out for 4 years and when we returned, we sold the home for the same amount we purchased it for! Our time in Jersey was a bit of a lifesaver, as we were able to save £40,000 to pay for our wedding, honeymoon and pay off our debts. We were also able to save enough money to allow me to have a year off when we had our first son. This was the start of our journey to paying off our debts.
What was our crisis point/better sort this out point
When we returned from Jersey with one little chief in tow, we realised that we could have achieved so much more over the previous 10 years in our lives than an accumulation of ‘stuff.’ I remember speaking to a good friend one day who had saved all of her working career, and over the same period had managed to buy a second property. She rents this house out for additional income and this allowed her to have a family with more financial comfort. I remember feeling really jealous and cross with myself for not saving more.
When our second son was born, he had sepsis meningitis at 5 weeks old and my emotional spending returned. I attempted to control my emotions by spending when I had little control over the life of my son. Two years after his illness, I began to work on my issues with anxiety and emotional spending. It was about time that we started to value what we had in life rather than seeking personal gain through accumulating ‘stuff’ in our lives. We had everything that we wanted in life. We had a beautiful family, good friends, family and our health.
What’s my progress now
In 2017, we started budgeting! I completed something called the ‘Money Habitudes Quiz’ . I came out as (surprise surprise) a ‘spontaneous’ spender. My husband was a ‘planner’. This was a revelation to us as it really helped us to understand why we always argued about money. He would also want to control where the money was going and I was also out of control with my spending.
We developed a middle ground so that every time we discussed money he would not automatically get the dreaded spread-sheet out! The promise was made to have better control of my spending. I switched to a bank account that helps with spending notifications, categorisation and goal setting.
I created several goals on my banking app and set myself up funds for the expected spends in life. Such as a Christmas pot, a car expenses pot and a birthday presents pot. Consequently I always had money available for those expected expenses rather than accumulating debts at the end of the year.
We have a joint account where we each put a set amount to pay all our bills each month. I set up a standing order to go into a Cash ISA to build up an emergency fund. We set up a standing order to overpay on our mortgage by £50 per month (every little bit counts!), a stocks and shares ISA and a pension for my children. I renegotiated all of my bills, sold my jewellery business, paid off my credit-card and purchased my phone handset upfront so that I could reduce my ongoing debts. The children’s old toys were sold and proceeds added to our holiday fund and to the children’s piggy banks.
We renegotiated our mortgage, which had been on a fixed rate at 4.6% for the last 7 years. This was always a frustration for us as we never benefited from low interest rates over the last 5 years. We paid a small fee to come out of our fixed rate 6 months early and managed to reduce our mortgage payments down by £500 per month. With our youngest starting school last September and no longer having to pay childcare costs, this really improved our financial picture.
We still have some debt to clear and we made sure that this debt was flexible that enables us to pay off lump sums as and when we want. I received £200 for some media work last week so I paid that off the loan. We made the decision that paying off debt and saving was important to us rather than just paying it all off the debts first. We had no cushion of money behind us and we wanted to ensure that we had money available in case the worst happened first before we go full throttle to becoming debt free.
Top tips for paying off the debt
- Identify what debts you are paying the most interest on and look to repay those first. Use a snowball calculator to identify what order to pay off your debts an when your debt free date will be. Add this to your calendar – your debt free date!
- Work on your financial mindset. Think about your relationship with money. What was your earliest memory of money and how may this be impacting on you as an adult?
- Have a good look at your income and your outgoings. Use one of the money apps like You Need A Budget* (this link gives you access to two months free) or go back to traditional pen and paper.
- Break down your debts into smaller goals. It is great for your mindset to achieve smaller goals along the way to reaching your debt free date.
- Make time to talk about your finances. Burying your head in the sand is the easiest thing to do but consider the consequences of delaying addressing your debts. Set aside time when you are not stressed to get clear on money. Ideally this should be with your partner, a close friend or a financial coach if you need external support.
- Debt is often more about the emotional fabric of your relationship with money rather than money itself. So pick the right time to discuss it.
- If you feel like you are struggling to stay on top of your finances, get in contact with Step Change or CAP. You can complete a free online questionnaire with details of your finances and they will send you a personalised action plan on what to do next.
- Forgive yourself for previous financial mistakes. Forgiveness doesn’t mean forgetting but it will help you move forwards. Everybody makes financial mistakes, even us financial professionals!
- If you too are an emotional spender, this will always be your natural go to habit. Make life easier for yourself by taking away the temptation. Filter off any retail emails that come into your inbox to a separate email. If you are going to make an online purchase, leave it in your basket for 48 hours before checking out. If you will allow you to return to the basket and make a decision after some unemotional more practical reflection time.
Finally, after completing all these tips, create a debt plan – Set out your goals, think about achievable and realistic timeframes to stick to and give yourself small rewards!