Debt is only useful if you can leverage earnings & capital.
Some folk have little of one and nothing of the other, so they’re left in a pool of limited economic resources to utilise.

The myth that Debt is good stems from the Banks early days of assessing credit leverages, those days have long since passed and credit history is available to nearly everyone given the need to access it. All Debt does is underpin the human balance sheet.

Pop into Wonga – tell them that you want to borrow thirteen grand and you don’t have a job

there are plenty of legitimate companies out there who specialise in lending to people who can’t afford it.

there was a thread a month or so back about someone financing a nice car based on there benefits. turns out its a real thing.

https://www.thecarfinancecompany.co.uk/

Oh, debt is great, it enables people to invest in stuff that improves their lives and companies improve their productivity. The vast majority would never own a home without debt.

Too much unsecured debt is a big risk though, and it can all turn pear-shaped pretty quickly.

So many wonderful STWers in the world who are far superior to the normal world.

But Jaffa cakes ARE superior to the normal world!

“….is it really debt if you have the savings in the bank to cover it ?“

I’d always assumed these headline figures are net debt. As you say, it’s pretty meaningless otherwise.

http://www.telegraph.co.uk/business/2017/05/24/household-debt-hit-record-high-credit-card-spluge-adds/

https://www.tuc.org.uk/sites/default/files/Britain-In-The-Red-2016.pdf

I agree with your view on it but it’s a relevent question surely.

Some ‘facts’ perhaps to this thread? Please post up other links.
http://themoneycharity.org.uk/money-statistics/

A few years ago the figure was 6K per household (average) and people were horrified at that.

@5lab – not really. It’s when you take on debt to buy goods to simply maintain a “lifestyle” that it’s a problem.

I’m sure that if I went through my outgoings I’d find something along the lines of the £80pcm gym membership that I don’t use or have need for anymore.

Aye, cos it’s only unemployed people who are poor. What’s the purpose of wonga if not to lend to poor people?

It lends to poorer people but it doesn’t lend very much or for very long – its the lack of fair consumer credit options for people on low or irregular incomes that fuels companies like Wonga. Wonga exists because banks and building societies don’t address poorer customers.

But a lot of what options there are for people on low incomes aren’t really credit or loans. Places like Brighthouse are rent-to-buy. Very expensive ways to buy goods but not actually debt. You could buy a cheaper telly in Currys on interest free credit – but not if you’re poor.

THE AVERAGE TOTAL DEBT PER HOUSEHOLD – INCLUDING MORTGAGES – WAS £56,750 IN APRIL. THE REVISED FIGURE FOR MARCH WAS £56,619.

and

PER ADULT IN THE UK THAT’S AN AVERAGE DEBT OF £30,340 IN APRIL– AROUND 113.6% OF AVERAGE EARNINGS. THIS IS SLIGHTLY UP FROM A REVISED £30,179 A MONTH EARLIER.

and

PER HOUSEHOLD, THAT’S AN AVERAGE CONSUMER CREDIT DEBT OF £7,349 IN APRIL, UP FROM A REVISED £7,309 IN MARCH– AND £543.70 EXTRA PER HOUSEHOLD OVER THE YEAR.

and

TOTAL CREDIT CARD DEBT IN MARCH 2017 WAS £68.08 BN. PER HOUSEHOLD THIS IS £2,521 – FOR A CREDIT CARD BEARING THE AVERAGE INTEREST, IT WOULD TAKE 25 YEARS AND 11 MONTHS TO REPAY IF YOU MADE ONLY THE MINIMUM REPAYMENT EACH MONTH.

Having only just got on the property ladder (at 42) thats a fairly chunky debt. No other debts or loans in my world currently.

What staggers me is some people’s attitudes to their money/debt. Bloke at work admits to over £30k debts and still took his two kids to Disneyland, Flordia last autumn (in term time obvs= fine to pay). Hes always moaning about being skint (defo earns more than me) and reveals his mortgage is £300 a month. He’s had it 10 years and it is interest only. His Mrs (part time haridresser) now wants a 4×4 ‘just cos’ FFS 😯
that £30K ia only getting bigger

It lends to poorer people but it doesn’t lend very much or for very long – its the lack of fair consumer credit options for people on low or irregular incomes that fuels companies like Wonga. Wonga exists because banks and building societies don’t address poorer customers.

But a lot of what options there are for people on low incomes aren’t really credit or loans. Places like Brighthouse are rent-to-buy. Very expensive ways to buy goods but not actually debt. You could buy a cheaper telly in Currys on interest free credit – but not if you’re poor.

That’s half the problem, the places geared up to service the poor are taking on risk and as such charge them more as the default levels are higher. Thus the poor get poorer due to not having access to cheap finance.

As for the average debt of £13k, I can see how that’d be fairly easy to do but I can also see that it has the potential to be highly misleading. Does give rise to sensationalist headlines that help sell newspapers though.

I am discovering that much of this kind of difference is often down to how much their background and parents has ‘set them up’, as much as their behaviours and efforts.

My parents “set me up” by instilling a dislike of debt. Other than a mortgage I’ve pretty much lived by that. With the mortgage paid off, I’m now down to whatever my monthly credit card spend is and that gets cleared down to zero. Avoiding “keeping up with the Joneses” has been my major life achievement 🙂

A large amount of bank business/profit is based on consumer debt, it’s not really in their interests (sic) for it to go away.

Some years ago I got a sharesave scheme payout so went to pay off part of my mortgage. Transferred the money across and the bank employee looks at the details on screen and says: “Ooh! You’ve a large amount of free equity, do you want to take out a loan against that?” “No I effing don’t! Why do you think I’m paying my mortgage off?”

I’m with you on “Keeping up with the Jones’s” Colin

Why do people on these threads never understand that a car loan buys an asset? If you look at your personal balance sheet you have your £13k loan and (hopefully) a £13k asset against that loan… whats the problem?

Why do people on these threads never understand that a car loan buys an asset? If you look at your personal balance sheet you have your £13k loan and (hopefully) a £13k asset against that loan… whats the problem?

Because the moment you take ownership of said £13k car its value becomes £9.5k

perchypanther – Member
Does it include Brownie Points?
I’ve earned a shitload of them over the years but still unsure of how to actually redeem them.

I believe birthdays are traditional?

I had an email from my Credit Card today offering me a cash advance of anything up to my credit limit, no handling fee and 4.9% p a until my June 2022 statement date.

The cash would be in my account in a day or two for me to spend on literally anything I want 🙂

Because the moment you take ownership of said £13k car its value becomes £9.5k

True, but you are still only really £3.5 down in that case and not £13k. Also as the car continues to drop so does the outstanding loan to a point in a few years where the car depreciation has flattened off a bit while the loan continues to go down ultimately ending up with an asset you own when loan paid off.

Clearly affected greatly by what car you have chosen.

A friend of mine recently showed off his new, shiny laptop. He is a “JAM” just about managing – the hardest working bloke I know, but not on a massive salary/little if anything at all left over at the end of the month.

He told me he is paying off the laptop over 3 years, my heart sank. He’ll need a new one by the time he has finished paying for this one.

I was taught that the car/whatever that you have cash for is the one you can afford.

it occasionally gets mentioned on here, but Mr Money Moustache sets it straight. The scales might fall from from your eyes.

Agree with the guy who thinks PCP on cars is going to be the next PPI.

I’ve been there, but I think car and finance companies are targeting the most vulnerable in society – those on the middle class treadmill.

I don’t fall comfortably into either of the extreme camps on debt (“It’s great – dive in” vs “I wouldn’t buy a hair shirt without having gone without any clothes for 20 years”).

I use debt. I make sure I pay as little for it – just opened a credit card at 0% with no fees, so any thing that goes on that during the house renovations will cost the bank money and me nothing…. One of our cars is on a PCP at 2.9% (and I understand I’m just financing the depreciation). I prefer to retain cash in the bank for any instant rainy day.

I loathe being in hock to anyone, but accept it (e.g. property ownership) is part of the societal treadmill (“keeping up with the Joneses” for the sanctimonious/hypocritical) we all find ourselves on.

Debt has become a fact of life – like fire, it’s better to understand its uses and risks.

kerley – Member

Because the moment you take ownership of said £13k car its value becomes £9.5k

True, but you are still only really £3.5 down in that case and not £13k. Also as the car continues to drop so does the outstanding loan to a point in a few years where the car depreciation has flattened off a bit while the loan continues to go down ultimately ending up with an asset you own when loan paid off.

Clearly affected greatly by what car you have chosen.

Where has this interest free loan come from…?
The car doesn’t cost £13k if you get a loan to pay for it.
HSBC will give you 3.3% for a 13k loan, which paid back over 4 years (£289/month) will cost you £811 in interest….
And that’s a pretty low interest rate.

But, yes you do end up with an asset at the end of the loan; I imagine the value of which will vary wildly depending on what you bought, how much it’s been used & how well it’s been looked after.

A mate of mine bought a Megane Coupe recently. I think it was about £10k.
He originally bought in on a lease deal with a mileage limit, but
his Wife changed jobs & needed the car for work, so the annual mileage was gonna go up a lot. When he called Renault, they told him the didn’t offer a repayment package for such a high mileage so they’d swap him onto a loan. He already had a bank loan for something else so couldn’t go to his back for a ‘cheap’ loan.
He signed the docs, sent them off and it was when he got the documents through that he realised the interest rate on the loan was 13.2%!!!

We’ve currently got about 14 months to pay on our car loan – bank loan for our Ibiza that my Wife took out just after we got married.
Once that’s paid off it’ll be just the mortgage left…..

I regularly use my credit card, but mainly as a buffer while I move the money I am going to use to pay for whatever it is from the appropriate savings fund to my current account to transfer it.
For example, I keep a car maintenance fund (£200/month put aside to hopefully cover all costs apart from fuel for both cars). Any car related purchases get bought on the credit card, so I can then transfer the money across at my leisure from the car maintenance account.

Having debt has always given me the jitters….

With interest rates as low as they are I don’t see the point in saving for something that I can have now.

– I could save £100 each month and buy an item for £1200 after a year

– I could pay £105 each month and have the item now. Is the additional 12 months use worth it for £5 more per month? Pretty much every time the answer is yes in my experience. You could also be dead in 11 months time!

By “Keeping up with the Jones’s” I mean buying goods for the sake of buying them to maintain appearances. It doesn’t matter if it’s via a straight cash purchase or on credit. I buy stuff I need rather than attempting to build a facade or just because X has it.

There’s no way I could afford to buy a house without taking on debt (mortgage) but I’m not going to get a loan just to get a huge flat screen TV or similar.

My Mrs has experience of real debt due her ex, currently paying about 10% interest on a £30k second mortgage on her house but can’t risk paying it off as ex still on deeds and mortgage so paying it off would be like handing him £15k in equity on a plate 😥

I buy stuff I need

The problem is that it isn’t a clear line.

We didn’t *need* to re-fence our garden or put some decking in but we really wanted to do something with what was beginning to fall down badly.

Conversely I didn’t *need* a new telly although the one we have is pretty knackered.

We borrowed money for the garden but putting up with the telly.

Having only just got on the property ladder (at 42)

Ouch. We paid our mortgage off last year (me 44, t’other half still well the right side of 40) and have cash in the bank, as basic rate taxpayers living in south east. I was brought up to be really (probably overly) averse to debt and the mortgage was the only loan I’d ever had.

This thing about paying off a mortgage aged x, y or z though – is this a good marker? When I had more disposable income I frittered more on stuff I didn’t need. The way I see it (occasionally, my view does differ from time to time) is that by reinvesting into my property I build more for my children’s future *AND* they get to live in a nicer house with a bigger garden and in a nicer location. I could sell up tomorrow, buy a more modest house (in the same town) pay off my mortgage and have around £100k in the bank – but I can be sure I’d end up spending it on nicer holidays and more stuff I really didn’t need.

I could sell up tomorrow, buy a more modest house (in the same town) pay off my mortgage and have around £100k in the bank – but I can be sure I’d end up spending it on nicer holidays and more stuff I really didn’t need.

Your children would still get a modest house as inheritance which is enough isn’t it?

Don’t know what age your kids will be when you are likely to die but mine will probably be around 55 or more. I would have expected him to not be reliant on an inheritance when he is 55…

http://www.globalrichlist.net

The way I see it (occasionally, my view does differ from time to time) is that by reinvesting into my property I build more for my children’s future *AND* they get to live in a nicer house with a bigger garden and in a nicer location.

In blunt terms, you have to assume that the net growth (less costs) in the value of this asset is greater than you’d get against a smaller house + cash in the bank.

Current* environment of high asset prices and low interest rates means the former has been preferable. But, since I’m about to increase my small mortgage to do up my house, I can guarantee the whole lot will come crashing down..!

*Property prices are softening – see London high end as obvious change. Same is true of the classic car bubble and I suspect other assets will start to slide the same way.

By “Keeping up with the Jones’s” I mean buying goods for the sake of buying them to maintain appearances. It doesn’t matter if it’s via a straight cash purchase or on credit. I buy stuff I need rather than attempting to build a facade or just because X has it.

I don’t think anyone uses this rationale anymore. It’s more “Mr Jones has a white Audi A6 with black wheels, therefore I deserve one too”.

Less about appearances and more about entitlement. A subtle distinction but one worth making I think.

In blunt terms, you have to assume that the net growth (less costs) in the value of this asset is greater than you’d get against a smaller house + cash in the bank.

There is that, but that doesn’t account for the years growing up in a nicer house with more space inside and out – it isn’t a simple calculation and we based our decision on many factors (although as I said myself earlier, my views do differ sometimes). More recently I have been considering buying somewhere smaller and then buying a small flat to let out on AirB&B/HomeAway etc (we live in Harrogate and it is a very popular holiday destination + conference venue).

I would have expected him to not be reliant on an inheritance when he is 55…

If not then their is the children’s children. I guess I just want to feel like I have passed something on as I had passed to me (I only got a modest inheritance of around £80k but it came in very useful at the time to allow me to move up a step on the housing ladder myself).

Have skipped to the end here, but I’d love to have £13k debt! And I’ve got no savings. In the top 10% of earners apparently, shit car, no kids, not an extravagant lifestyle (1 holiday most years, bikes are 2010 and 11). I’m slightly over mortgaged after a divorce but I really struggle to sit at home not spending while life passes me by! Modern life innit. Half my debt is solar panels too, and most of the rest is consolidation of earlier stuff. I think public sector pay restraint has caught me out a bit, there was a time when I could borrow and then inflate my way out of it…..

km79 » I wonder how many households have zero debt. Cant be many these days.

Dunno, we’re pretty close. A rolling tally on my CC some months (mrsmf refuses to get a credit card, wise move I think, she’d be bankrupt). Otherwise that’s it. Cars (old!) bought for cash. We’re still tight but that’s what 2.4 kids do to you.

Having said that, the mortgage is more than large enough to my mind.

Apart from mortgage I am debt free and have been for most of my life. Not because of a particular aversion to debt but because I do not feel the need to buy loads of stuff I don’t need. Modest savings tho – I plough all my extra money into the flat ( 10 000 in the last 18 months), Mrs TJ has some savings but I don’t know how much.