Credit Crunch: A Survivor’s Guide – Debt: The Enemy

Most of us have some form of debt.

If you don’t think debt it bad then think about this: the whole entire world went into recession in 2008/9, the main cause of this was debt. Too many people owed too much money and couldn’t afford to pay it back. Debt is always, and will forever be, the enemy.

The list below is not comprehensive, but it gives you an idea of the vileness of the debt. Each one is another layer further into the rings of hell. We start off with the cheapest form of debt, only two of which can be considered acceptable. After that you’re on the rocky road to hell!

Student Loans – From the Student Loans Company or a similar body. The rates on these are based on the rate of inflation, so they cost very little. Unfortunately you are limited by the amount you can borrow per year and you have to be a studying full-time. You don’t have to pay these back until you have a certain monthly income, rather than having to start paying it back as soon as you finish your studies.

Mortgage – Likely to be the largest amount of debt you will ever have (hopefully!). Although it may actually cost you £300,000 to pay off a £150,000 house, mortgages are generally the cheapest form of debt available. But, by overpaying your mortgage you can save thousands. By changing your lender and getting the best deals you can save hundreds of pounds a month, which you can use to pay it off faster, hence saving you several years of debt.

Unsecured Loans – Loan agreements vary, depending on the length of time, the amount you want and the lender. 7-15% is normal for a high-street leader. You can get them for home improvements or buying a new car. Also popular is consolidating credit-card debt.

Credit Card – Get back hellbeast! With rates of 18 to 35% normal, you could be paying off an iPod for 20 years if you only pay the minimum payment. Credit cards are basically a way for banks and merchants to lull you into a false sense of security, and slowly and methodically rob you of all your hard-earned wages.

There is only one reason to use a credit card, and there is only one sensible way to deal with the debt: pay it all off every month. Use a card that has added benefits, such as cash back or airmiles, or BA miles, but always always always pay off the credit card balance every month.

If you already have credit card debt (and don’t worry, it happens to us all) this is the biggest obstacle to have to deal with, and you do that by transferring your balance to 0% interest card for the length of the 0% period and trying to pay off as much as possible, and then moving the balance again once the period is up, preferably to another 0% on balances card and continuing to pay it off. If it’s too large for you to ever be able to pay it off in 18 to 24 months then it would be worth looking at an unsecured loan.

Storecards – The actual devil! I kid you not! Rates for storecards have come down a little in recent times, but 20 to 50% is not unheard of. Some of them do nice introductory offers, which might be worth looking in to, but read the fine print and know what you are signing up for. It could well be your soul you’re signing away! The storecard is the ultimate enemy!

You have to try to work your way out of the debt. The way to do this is to work your way out of the hole. The less you pay to service the debt (overdraft fees, interest, etc), the better off you are.

Try to never get into debt. Having debt means your money is not your own. If you’ve budgeted and you have £400.00 left and you have a load of credit-card bills then that £400.00 won’t last long. Most of what you will be paying back will be interest, which just means you’ll be paying nearly the same amount next month and the month after and the month after that! Don’t fall into the debt trap, and if you do, try to escape as soon as possible.

If you have debt what you are basically doing it throwing your money at your bank manager, or credit card company, or loan company. Throwing it, picking up big piles of cash and throwing it away.

Don’t do it, it’s wrong.

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