March 2019 Podcast – All About Debt

Dealing with this area of your personal finances is really the kingpin or the starting point to improving your future wealth and happiness.

it does seem to be the case that we are all overloaded with debt of some description or another and this seems to be at the very start of people’s lives, my daughter was being offered credit on her 18th birthday, just as soon as she was legally able to consumer court. the problem with credit is the if it is not used correctly then it effectively steals your future. one of the reasons credit is such a powerful medium for those that are offering it is this, it guarantees them a share in your future income. Money that you should be using in order to provide the things that you need and want, ends up being paid in interest charges. But, it’s worse than that, the entire system is designed so that you never effectively repay debt and are caught on a treadmill of having to give up future income in order to service the financial liabilities you have. From the lenders point of you it becomes a very good stream of income from your point of view, it is a very large stone hanging around your neck.

Given that we now have things like student loans, it is accepted that every 24 or 25 year old will end up with some kind of long term debt. even if there is no student finance to be considered then there is car finance, lease plans and bank overdrafts and credit card lending. The numbers involved or truly fantastic, and I will cover more of these in the content below. The problem from your point of view, is this if you have any form of debt and you are currently still working your debt, is going to be serviced out of your future income. That is money you have not earned yet. if this money is going to be earmarked for somebody else, for example your debt repayments then it can’t work for you.

Importantly, most of the things we tend to buy on credit are the things that go down in value, or are consumable which makes things even worse. You end up with no long-term value and the benefit goes to the manufacture of the product or of the service and the credit card company. Sure it is the system of capitalism that gets us to this point, problem is far too many people don’t think about this subject in a mindful way or bother to really consider the options and the short term future.

This is exploited by the banks and credit card providers. If for a minute you did sit down and think about what today’s credit card borrowing was going to do for your future income, you probably wouldn’t borrow. You’d probably make a plan b. This is the plan b I would encourage you to consider sooner rather than later.

it is not possible for you to have a rock solid, and independent financial future if you have debts kicking around. Sure, there are such things as good debt – but in the main debt of any description is a bad thing. Over at moneytrainers.co.uk co.uk I have a couple of downloads on this particular subject.

It is vital that you review your existing financial circumstances as a matter of urgency and consider very carefully the level of debt but you have and what that is going to look like in the future.

DEAL WITH DEBT

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Charles Dickens, David Copperfield

Current UK National Debt – the amount owed by the government is £2.156 trillion (at December 2018). At the end of December  2018 personal debt – the amount owed by us all personally was £1.65 trillion or £59,261 each.

UK National Debt now stands at £2,156 trillion. It’s currently increasing at around £5,000 per second. http://www.nationaldebtclock.co.uk. Someone will have to repay this at a future date.

Just so you know: a trillion seconds = 31,688 years or would take to back to 29,000 years bc.

Jesus was just a twinkle in an eye somewhere fact not born for another 27,000 years or so. These numbers are mind boggling.

There is something about debt, on one level it seems we can’t live without it, yet millions do manage it. Supported by the government and the banks we are encouraged to live now, buy now, have it all now on borrowed money – effectively mortgaging your future very nicely.

Borrow if you need, just understand how bad it can be for your financial health – like smoking it feels good at the time, but stuck in a cancer ward with terminal lung cancer does not seem that great.

The message we get from all of those trying to sell us things is this …Imagine how good you’ll feel when you have x or y. Just do it! There are many problems with this kind of thinking or approach to having stuff, and most of the stuff we all buy on credit is just stuff; first problem is this.

It’s a poor man’s (or woman) approach to life. The wealthy understand the truth about borrowing – you mortgage your future income in order to get that car or holiday this week rather than next month or next year, waiting for the right time, perhaps when you have saved enough.

Wealthy people, those that are able to earn and keep hold of money have very different spending patterns to most of us, and certainly don’t borrow to buy stuff. Working on your buying decisions is one way to ensure you become FI (financial independent) at some time in your life.

Long after the buzz of the purchase has gone, you will still paying for it out of your future income. Debt, effectively robs you of a future, an independent future.

It’s also stressful, and stress is a killer. Debt equals death, bit harsh, but go ask anyone in debt.

Repay/Overpay

I have a budget planner available from my website (email me on admin@moneytrainers.co.uk and ask me for a copy of it.

On the debt side of this planner I ask you to rank debt in order of it’s interest charge. Often you will find that the actual interest charge on much of your debt varies from 16% – 28% right down as low as 1% for mortgages.

You should then consider what borrowing can be repaid without penalty – credit cards are not normally a problem, but loans and other types of finance may have a penalty, check first.

Once you know what the most expensive debt is you should start to make larger payments to this, and maintain the minimum or contracted payment to the rest of your debt.

This method provides you with a ‘snowball effect’ as the more expensive debt starts to reduce, thus you’ll be paying less interest and more capital; forcing the debt to reduce.

True Cost Of Credit – Alison Average.

A few years ago Alison went on a very nice holiday and she put the cost of this on her credit card which leaves her with just half of the UK average debt of £4500.

This is likely to be paid off over the next ten years or so if she doesn’t spend any more on her card. Based on average repayment time, and an interest rate of 18.66% assuming she makes the minimum payment she should clear the balance completely in around 31 years, and pay £6350 in interest. Total cost is over ten grand.

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