Phil Long’s blog - Teletranone

In part one I talked about how I got myself in to around £16,000 worth of debt after leaving college and entering the big-wide-world of work. In this post I’ll tell you what I did to get myself out of my financial quagmire and finally become debt-free.

I finished my last post having moved to a shared house with a friend from Zen. It’d be nice to be able to say that at this point I finally took stock of my position and begin to turn things around; but that wouldn’t be true. In fact I continued to bury my head and ignore the position I was in. I still insisted on my little luxuries - like Sky TV and the best PC I could build. I continued to pay the bare minimum on my bank loan - meaning for £50 per month I was paying off just £5, of a debt of around £4,000. Other credit card debts went ignored, and of course I had the huge commitment for four years on a three-year-old Fiat Brava of around £9,000. This situation continued or 12 months.

At this point I moved to Rochdale, even closer to work. Prior to doing so I had moved to my parents for six months and had saved what I would have spent on rent - which proved useful later on. After discussion with friends and the example set by one or two of them on how they achieve what they want it dawned on me that I really needed to address my situation. The very first thing that helped with this was as simple as an Excel spreadsheet that a colleague was using to help with his own financial problems - which had been created by his accountant friend. It provided the opportunity to break down my money in to several areas; debt, food, bills, rent, entertainment and savings. It got me to look at what I was spending and set a budget for a 12-month period.

I had a credit card bill which was being sent to my parents house, and this was something immediate that I needed to address. I also realised I had other debts I needed to face. I dug out old letters from companies I owed money and also obtained my credit report from Experian - to make sure I had details of what I owed everywhere. In my spreadsheet I marked what I had to spend money on - rent, bills, car insurance, fuel and credit, food and I also made a provision for savings. From this I worked out what I had available to pay off debt. In addition I had the money I saved while at my parents.

I wrote to the companies I owed money to and requested details of how much I now owed them - including interest earned. A couple of them simply sent the figures, but others replied with details of what I owed and provided offers to reduce the debt if paid within a certain time scale - varying from one who’s offer was conditional on immediate payment to another which was to be over a few months. Given I had money saved I paid the offer based on immediate payment in one, and didn’t start making payments on other debts that month as it wiped out my savings and also took my spare money for that month. Still, one down… with close to £1,400 reduced to £700 in a single payment. The offer that was over several months was not affordable. I called them and negotiated a couple of extra months from them. They agreed to this and that reduced an around £1,000 debt to roughly £500. To my remaining creditors I offered token amounts of what I had left to show I was committed to paying the debt.

I ensured I was putting £50 a month in to savings. While this didn’t reduce my debt, this ensured that I had money available for emergencies (including car maintenance - I still owned a Fiat, remember), holidays and the occasional treat if the emergency fund got above what I required.

I still continued to pay the £50 per month on my bank loan initially as - while the interest was a killer - the longer standing debts where I had obtained deals represented a more significant saving in the long term. Once the deals were dealt with I continued with small payments to my other creditors and increased the amount going to my bank-loan - so as to reduce the interest and start to make some head-way on that loan.

As part of my analysis of what I owed people I reviewed the contract on my car credit to determine whether there was some means by which I could get out of that agreement. I discovered that after two years I could simply hand the car back - however I would still be left with just over £1,600 of debt due to the ‘warranty’ they had me take out when I bought it. One year after moving to Rochdale I bought a Rover 220 Turbo (I really haven’t learnt about buying reliable cars at this point! ) for £600 and took the Brava back. This meant I had reduced my debt by just over £3,000 (having paid off £4,700 over the two years I had the car).

Around the same time one of the other companies I owed money made an offer to reduce the debt for immediate payment. Because my payments on my bank loan were not fixed I was able to shuffle my money, and savings, around to further reduce my debt (albeit just a couple of hundred quid).

I cleared that one, and that left me with the remaining car debt, ongoing insurance debt and one credit card. It was also this time of year when finally I wasn’t able to defer my student loan any more - so I began making the minimum payment on this. I had saved a fair bit, originally with the intention of buying an iMac, but then Sky announced their HD service ahead of the World Cup 2006. I decided the PC I had would suffice and decided to opt for a Sky HD Box and an HD television. The principal debt I was paying at this point though was my bank loan - and with my ongoing Excel budget I ensured every spare bit of money went on this, while still continuing to save for one-offs. One year later, I had cleared my credit card debt, my bank loan and my car debt. All that remained was my student loan and I increased the payments on that, but my savings were my priority as the interest on savings was higher than the interest paid on my student loan. Also, in 2007, I once more had the savings for the iMac 24″ I had waited a year for.

The key there was that the savings I had started making were now putting me in a better position to allow me to buy ’shiny things’ without using credit, and without putting me in an uncomfortable financial situation. When I moved to Manchester City centre, to sample “city-living” I continued to use my same budgets (albeit with higher rental costs) to ensure I still limited entertainment spends to ensure I retained a focus on longer term objectives. As debts were paid off I transfered money primarily to savings, with slight increases to the entertainment budget as a ‘reward’ for reaching a more comfortable and sensible position. I basically still “live” far below what I earn and that is very important to ensuring my longer term goals can be satisfied comfortably - and to ensure I’m best able to deal with the unexpected.

After six months of sampling Manchester I decided it wasn’t for me, so my objective switched to getting the deposit I needed to buy a house - and that’s where I am now (with some shiny things also existing on my agenda along the way). I once more returned closer to work (in steps, Prestwich just over six months ago, and now back to Rochdale). I’ve bought a cheap-to-run car, a Diesel VW instead of the Petrol Turbo Rover and am sharing with two other people to maximise my savings. I still buy some things that aren’t strictly ‘necessary’ - but I do get enjoyment out of them and I don’t feel it’s right to sacrifice all of the ‘nice-to-haves’ and exclusively focus on long-term aims. The important thing is they’re budgeted - I know how I’m paying for them - and I do not get in debt to obtain them.

At the end of May this year I made my final payment on my student loan - finally freeing me of all debt… until the rather huge one I’ll need to take on next when I buy a house…

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