Mrs MummyPenny Talks is back for Season Five.
This season I’ll be joined by Faith Archer of ‘Much More With Less’ and our seven episodes will focus on practical advice for dealing with the Cost-of-Living Crisis.
We’re grateful to our sponsors, PensionBee, who are on a mission to make pensions simple. To find out more and or sign up to PensionBee you can use this referral code where both of us will get a £50 credit to our pensions
Episode 6 is DEBT. Here are the transcribed show notes
Hi and welcome back to Mrs MummyPenny Talks Cost of Living with Much More With Less. It is episode six, and it is time to talk about debt and what to do if you’re in trouble with money. It’s a big subject, that is going to be more and more of an issue so we are passionate about talking about it. Firstly, to say thank you again to our friends at PensionBee for sponsoring this wonderful podcast season. Just handing over to myself to talk to you a little bit about PensionBee’s podcast. So we get it, pensions can be complicated, but PensionBee’s on a mission to make them simple with its podcast. So, whether you’re just starting on your savings journey, nearing retirement, or somewhere in between the Pensions Confident Podcast can help you to get the best out of your pension. I joined them for Episode Five to discuss the cost-of-living crisis, why it’s happening, and when it will all be over. You can find this and other episodes of the Pension Confident Podcast on all major podcast platforms, which are available to listen to today. So debt. And shame. The shame a lot of people feel about being in debt.
I think debt’s like fire, because it’s something that can be incredibly useful, you know, by keeping you warm, you need debt. If you want to buy a home or a car, it can be great. But it can also be incredibly dangerous, not just financially, but also in terms of the impact on your mental health. You’re just talking about shame, that’s a really powerful word. Maybe, because so many people do run debts, and we’re seeing the amount of unsecured borrowing going up as we’re seeing this cost-of-living crisis develop. So maybe we need to lose some of the shame so that we can actually deal with that, tackle them and come out the other side.
That’s a great analogy. I really like that. I think before we launch into anything about debt, you know, talking about good debt, bad debt, and what to do if you’re in debt. If it’s manageable debt or unmanageable debt, I’m going to share a bit about my story. I have been in debt my entire adult life, from the age of 18 when I got my first credit card, all the way through to 2019, which is when I managed to pay off my last bit of credit card debt. So, we’re talking, what 20 years of revolving debt. What I mean there is that I’ve always had debt of some sort, be that credit card debt, or loans, or finance deals on cars or furniture. There are all these different types of debt. I never got a buy now pay later debt, and we will talk about that later. But I’ve certainly bought a bed on a year’s interest-free deal. How I always thought of it, and this is due to my financial education because I didn’t get any financial education and a lot of children don’t, is I just thought it’s free money. Literally, that’s the thing that carried me through my adulthood was it’s free money. It’s 0%. A lot of my debt was 0% that I was shifting from one credit card to another. It wasn’t until I had a conversation with Debt Camel and you in 2014 or 2015?
I think it was about then. And it was in the context, wasn’t it, that you were thinking of remortgaging?
I think I had about 10 grand of debt at the time. Debt Camel · Answers to questions about debts and credit ratings – in plain English! who is an expert in debt, she knows everything. She’s amazing. She said to me, you need to think about that much debt because it could cause problems when you’re remortgaging. That’s when the penny dropped.
Exactly. A lightbulb moment. The thing with debt is that we normalise it because it’s just money we pay each month. It’s just two or three hundred quid, or 500 quid, or 1000 pounds a month that I pay off in debt payments. “Oh it’s 0%, it doesn’t matter, I’ll just move it from one credit card to another”. But then what happens when your circumstances change? You can’t get those representative deals anymore and suddenly, you’re paying 20. 25 or 30% interest charges on your credit cards. Suddenly you’re stuck paying interest and it can easily get out of hand.
I think that is one of the key things – when your circumstances change, because the vast majority of us are basically one life event away from financial problems; death, divorce, bereavement, illness, mental health issues. You might be going along fine servicing your debt payments, but then all of sudden things change and it’s no longer fine.
Totally. Even though the penny dropped with that discussion with you two, I didn’t sort out my debt issues then. It took me a year to crystallise it in my head. It wasn’t until I turned 40 that I caned 1000s of pounds on holiday, a nice present to myself, a 40th birthday party that I took my head out of the sand and I’m 16 grand in debt. I could service my debt as I could pay the minimum payments, but that was all I could do. It was the early days of Mrs MummyPenny. We talked about money making in the last episode, I made about four or five grand in my first year of Mrs MummyPenny. How can you service minimum payments of 200 pounds a month? My minimum payments were £200 on 16 grand worth of debt. I could just about service it because I still had some money left from my redundancy.
So, you were in a situation where you could afford your minimum payments and your debt wasn’t increasing. To a certain extent, you controlled your spending so that wasn’t increasing. So, what could you do to tackle that debt once you were focused on it?
I think the first thing is taking the head out of the sand and adding it all up. Mine was across four different credit cards and I looked at the interest rates. I restructured my debts because I had one credit card that was just about to end. So, I made sure I had it mostly on 0%. The bit that was on credit cards where I was being charged interest, I made sure I paid that off first. I use the avalanche method. You’ve got a snowball method, and you’ve got an avalanche method. I use the method where I paid off my debt with the highest interest rates first. I cleared that and I moved through my debts that way. Because I am a mathematician, it worked for me mathematically to clear the debt with the highest interest first, because I thought that would save me money in the long run.
So, you kept every single minimum payment, apart from one debt? And you pick the one that had the highest interest rate, and you chuck any extra money at that debt to pay it off? Yeah. I guess once that was cleared, that was suddenly that big chunk of money you’ve been paying each month that you could then put into your next highest debt?
Which was the next interest rate. After I got rid of them, I was left with about 15 grand on two different 0% cards. I made sure I covered my minimum payments and I just kept throwing as much extra money as I possibly could at it. Just go back to our previous episodes, because I did all that making money stuff and all that saving money stuff to stretch my budge. Because of my income versus my expenditure, I needed to make the gap as big as possible to increase as much as I could in debt repayments. I was very fortunate that I had my own business.
Although, sometimes with your own business, you have months of feasts and months of famine. I always tried to smooth it out, but when I did have big months, I would throw as much as I could into my debt repayment. I kept going and kept going. I did really extreme things. Because when you’re paying off debt it’s the bank’s money, right? It wasn’t my money. I had to realise that. The big thing for me was coming clean on my website and on my social media and admitting that I’m a personal finance expert. I was so embarrassed. I was so embarrassed. I spoke to you; you were one of the first people that I showed my first attempt at a budget too. Faith then managed to strip another 500 quid out of my budget. She tried to make me do some things that I wasn’t comfortable doing. But I did take on some of your feedback.
But here’s the thing. It’s just suggestions. I think anybody can look down their own expenditure and have a think about what, in an extreme, they could cut. But if you can afford it, you might prefer to keep some of those things in.
You’ve always said to me to cancel any flower subscriptions!
I just said have a think about how much it costs. Is that the best use of that money? Or would you rather buy something else with it?
Can I just say I don’t have a flower subscription anymore. That was a completely excessive thing.
It is lovely. But you just there might be other more fundamental things you need to be able to cover. Exactly. And when you’re paying off debt, I’m just going to put it out there, you probably shouldn’t have things like beauty box subscriptions, flower subscriptions, magazine subscriptions. Those nice to have fluffy things when you’re paying off big amounts of debt. I did some quite extreme things. I did no-spend months. That means the only things you’re allowed to spend money on is food, getting to work, and essential bills. It’s ****** hard. It’s so hard. It’s a bit like a diet. We’ve talked about this analogy before. You have to be a bit careful because, if you go on a strict diet for a month, are you then going to go and have a massive eating splurge at the end of it? It’s the same with money, isn’t it? You wrote me a really good article years ago, do you remember? It was the first ever post I did for you.
That must have been like seven or eight years ago. I’ll put a link to it. I bet it’s still amazing writing, because I learned a lot of my writing from Faith. I’ve got distracted now!
I think it took a huge amount of effort, and it took multiple years for you to pay that debt off?
It was awful. I went backwards. I went forwards. I was really embarrassed about it. But I kept writing about it. I kept putting out a blog post every one or two months telling people how I was doing. Summer holidays killed me because I got mum guilt. And I was like, “Oh, can’t afford to take my kids on holiday”. So, I took them on holiday and spent.
Spent the money and debt went back up again. But a combination of the hard work at paying it down and also being in a position to up your income. I think those were the two things that finally fixed it?
I managed to pay off, I set myself a goal of 16 grand in 16 months, do you remember? Because I liked the alliteration of the numbers. When we got to 16 months, we were like, this ain’t gonna work. So, then I changed it, and this is a good exercise in moving goalposts. It’s always fine to move the goalposts as long as you’re still working towards a goal. I set it to two years. So, 16 grand in two years, and I did it. And that was a nice message. I spoke to Claire at the FT. And I was like Claire, do you want this article for their Financial Times. I’m not a journalist, I’m an accountant. I wrote an article in my byline for the Financial Times in June of 2019, about paying off my 16 grand debt in two years. She hardly changed any of the words. I know that you prove read it and edited it a little bit for me. Also, The Sun wrote about it as well – a very different version of the story.
I think in some ways, you were in a fortunate position that you could make your minimum payments and you were in a position to increase your earnings. I think one of the things I am really aware of in the current cost of living crisis is that there are people where their debts are increasing, and their debts are not driven by spending on holidays or meals out or clothes. It’s paying their electricity bill. They can’t actually cover essential bills. What I would say is there is help out there. One of the ways to think about perhaps whether you need to start getting help is whether every month your debt is increasing. If you’re finding you have to go into overdraft every single month and deeper into it. If you’re finding your credit card balance is going up month after month, that is a really good sign that the debts are growing.
Hit the stop button. Get help. Who to get help from? Look for not-for-profit, debt help charities. Not the people that are going to make money out of you. So, we’re talking people like Step Change, the Citizens Advice, National Debtline, and Christians Against Poverty. They are busy because, sadly, there are a lot of people. And they’re under-resourced government. The sooner you contact them, the sooner you might be able to get some help. On the websites, especially people like Step Change 24/7. They’ve got questionnaires so you can work out your situation. They’ve got forms you can fill in to help you get your head round how much you owe and how much money you’ve got coming in and what you have to pay.
There are also some really good bloggers, Debt Archives – Mrs Mummypenny and Much More With Less you could go read our websites. We’ve got so much content about debt. Debt Camel · Answers to questions about debts and credit ratings – in plain English! is the ultimate resource for content. Money Saving Expert has got loads of stuff too. Be careful who you listen to and follow, I’d say, but these are trustworthy resources.
There is a lot of help out there. Social media has sometimes got a very negative perception. But I know a lot of people who’ve actually found a lot of support from other people in bad financial situations.
I did. My most popular Instagram post, which has had a reach of about 200,000 people, was the one I shared in 2021, where I put a picture of my car, it was a really rubbish picture, saying, ‘Yeah, I’m consumer debt free. I’ve just paid off my car’. It’s just the most rubbish Instagram post ever. But the debt-free community, because there’s this hashtag, #debtfreecommunity #debtfreeUK hashtag. There are all these people. Set up an anonymous account on Instagram and just share your journey it’s being accountable. Talk to a friend, a non-judgmental friend, please make it non-judgmental, who can just get it all out of your head. It’s so overwhelming when you’re on this journey and it really does affect your mental health. You’re thinking about how much debt you’re in 40-50 times a day. And let’s face facts, people commit suicide over this.
It can be incredibly destructive for individuals and families. But the one thing I would say is there is no amount of debt that is too big to tackle in some way. Seek help. If you do go through a debt advice charity, they can really help you frame how much debt you have, they can help you negotiate with your creditors you owe money to. You are much more likely, for example, to get an affordable payment plan out of an energy company if you can show that you have got help from a debt advice charity, and are able to set out what your outgoings are, and what money is coming in. Because that’s how you show that you really cannot afford it and you need a different payment plan. They will show you how to divide your expenditure.
In the episode of Mrs MummyPenny Talks, when we talked about essential bills, there are what are called priority debts. These might not be the companies that shout the loudest, but they’re the bills that you have to pay, because really bad things happen if you don’t. Mortgage and rent, council tax, water bills, energy bills. I think now broadband and some kind of phone provision, there’ll be an allowance for those. Those debts are the ones that you absolutely have to cover, then it’s trying to work out affordable repayment plans. Can you negotiate with your creditors? Can you for example, with borrowing, credit cards, loans, and so on, get your interest rate frozen, so that you’ve got more chance of actually being able to pay the balance down because you haven’t got an interest payment being added all the time? What I’ll say about credit cards is it’s not a priority bill. No. So if you cannot afford to pay your rent, or mortgage, electricity, council tax… You can be homeless; they can cut off your services.
Yes, so you prioritise. That’s why they’re called priority bills, you prioritise those bills over your credit card. But seek help. Absolutely seek help. Be wary of the companies that prey on you online. You know, like the IVA type companies,
This is all about how you can solve your debt problems. Some people may be able to pay them off, some people may be able to go on a payment plan, and over time pay them off. There are also ways of ending your debts. I’m going to mention things like bankruptcy that probably everybody knows about, but also IVA Individual Voluntary Arrangements, and debt relief orders. The thing to watch out with IVA companies is that they, they basically make a profit from your debt. It’s in their interest to sell you an IVA, but a very high proportion of IVAs fail, which can leave you in a worse position than you started with. That’s why we’re suggesting go to the not-for-profit debt advisors to get sensible advice tailored to your individual situation.
Sometimes those downright wrong IVA companies say they were recommended by Step Change. They lie. I’ve seen it. I’ve called them out. There’s one IVA company that put my face on their Facebook ads!
IVAs are like any financial tool, there will be some people that IVAs are suitable for protecting some of your assets. But I think it’s potentially a lot smaller population than actually end up with IVAs. I think for me, the big message of this particular episode is, if you have debt, be brave face up to it. Come up with a plan and get help to tackle it. If you possibly can.
Absolutely. It’s that simple. Don’t feel embarrassed. Don’t feel shame. A lot of people have debt. I don’t know the numbers; I can’t quote anything. But more than half of the UK population has credit card debt easily. I no longer have credit card debt. I do have a credit card. I am not anti-credit cards, but pay it off in full each month. I have an American Express card, because I get really good reward points that I can have as either Avios points or Nectar points. I just got 300 quid off my sofa. So, you can be quite clever with credit card points, credit card spending and credit card points as long as you pay off in full each month. Loans as well. It’s controversial but if you need a car to get to work…
Yes, maybe you need to borrow because you’ve got to get to work. That can count as good debt. But again, think about what you can actually afford. Think about what you really need, because it might not be the fanciest car with the highest repayments.
There’s always a big debate in the finance world about if a PCP, you know, like a car loan agreement, if that’s a good thing or not.
I know we have different views. I advise buying a secondhand car, buying with cash, and then just have really low running costs and run that car into the ground.
I’m of the view that I have three boys and I do a lot of mileage, so I’m gonna have a nice newish Toyota. I haven’t got a Tesla or anything. But I am going to be getting an electric car – I need to do the maths.
I think that’s the important point. Do the maths. Check. Before taking the debt on. How can you pay it back?
Exactly. How can you pay it back? So that was episode six, where we spoke about debt. Thank you for listening. Very, very personal area for me. And I’m really worried about what’s going to happen to debt levels come January, February. We always talk about when the credit card bills fall. Well they don’t fall on the floor anymore because you get an email about it. But people are going to spend a bit on Christmas and might use their credit card to pay for food. I’ve used my credit cards to pay food. I’ve been in that position because I didn’t have enough money to pay the mortgage next month. So, I had to use my credit cards to pay for food and I’m a personal finance expert, so there’s no shame in it. So, thank you ever so much for listening, or watching.
Thank you to PensionBee for sponsoring this episode. I am @MrsMummyPennyUK, you can follow me on social media, Instagram and Twitter, and Google me.
And I’m on at muchmore_less on Instagram and Twitter and my website is www.muchmorewithless.co.uk.
Don’t forget you can follow @PensionBee on all social media channels. And our final episode next week is The Future.
All about the future. Things may be pretty bad now, but let’s think about some practical ways to set aside a bit of money for the future and looking at retirement.
So that will be Episode Seven. That will be out next week, and we’ll see you then. Thank you. Bye!