So we are entering the final months of 2019, and I can bet that for the vast majority of us we are no further forward than we were this time last year and for some of us we may actually be worse off, and that will be further exacerbated by the up coming festive season and the pressure from both the media and advertisers as well as the personal pressure you put on yourself to spend money on presents and entertainment for your children or yourselves, often on credit cards or over-draughts or worse still loans, this time of year is really a hunting ground for capitalists and vultures looking to tie you into agreements that mean next year you will have to come back for more.
It is not our fault, advertisers and social media put us in positions that we simply cannot escape, and we borrow in order to “keep up” with the neighbours or our work colleagues be it through our children’s activities or through the car on the driveway, holidays, clothes even sports and hobbies all say something about us and our ability to pay out money, this is all well and good but what happens when you can no longer work? I don’t mean if something were to happen to you right now, more the inevitable end, Retirement we are all heading there and most of us with nothing planned to see us through.
I would like to push for another type of new years resolution, it will be something we are going to achieve in our house, that is instead of the standard “no chocolate” or “go back to the gym” both of which normally only last a couple of months before we find ourselves sitting on the couch eating chocolate while we should be at the gym, we are going to be working toward reducing debt and becoming more financially intelligent, after all how can you expect to master something without knowing how it works ?
Some startling statistics are that the average UK debt is £31k per adult! that is shocking and although I don’t know anybody quite there I am aware of people near that threshold, when you put that against the average UK household income of £28k the gap is clear to see, and of course as this comprised of borrowed money the interest is also staggering, an average of £967 in interest alone paid last year for every Brit.
All economies run on the least paid individuals, this is the case universally, as these economies are propped up on debt, the circle is vicious and relentless and designed to make it difficult to break, but not impossible.
Firstly bear this in mind, there are debt charities and advisories that offer free and payed advice to people struggling with debt, but this advice in my opinion is flawed beyond belief, the basic advice is centred around either declaring bankruptcy or entering into a sponsored agreement where you declare to the world that you are nearly bankrupt and asking for them to freeze all your accounts and let you pay off the balances, but let’s think that through for a moment,
- Bankruptcy – Stays on your credit file for 6 years, and will affect your credit rating for much much longer, so let’s say that you have reached the point where you believe that is an option, you would normally be around 30 years old and may possibly have a mortgage, so you would need to sell the house and use the equity to repay debtors, everybody is made aware of the Bankruptcy as it is public information, and it will have to be declared when you apply for housing with private landlords, any credit over the value of £500 and could remain for longer based on how long it takes to become discharged, at the very best based on a 30 year old this means you are 36 when discharged and paying through the nose for credit while you try and rebuild a credit rating, then at around 40 you are able to start re-building your life and possibly look to buy a home again, all the while having to declare that you have been a bankrupt and paying higher interest for the rest of your life, this doesn’t sound like a good option to me.
- IVA – Individual voluntary arrangement, this is a fixed term of between 60 and 72 months (so 5 years at best) possibly 6 and the conditions are no more relaxed, you will still have to sell any assets you have to pay into the IVA and then you are still the same age when you start to re-build your life.
And of course you could just bury your head in the sand and do nothing, but that leads to all manner of issues and most of these will ironically cost you more money because you are always viewed as not wanting to pay as opposed to not being able to pay and this is despite the fact that you haven’t got enough money for the initial debt.
The first steps in my opinion are to understand the nature of the debt, how much actually is it ? how much is the interest and how much am I paying off the capital ? often these questions are not asked and people simply start at the least amount and try to pay that off while struggling to keep up the payments on a debt that is costing them a fortune in interest every month.
Work out how much your utilities actually cost, it is surprising how many times we just simply pay the regular estimated payment without question and then are excited when the company gets in touch to tell us that as we have overpaid we can either claim the money back or allow it to be credited to our next bill (most companies assume this by default) under these circumstances we view this as good will on the part of the company but actually that money could have been better spent on a debt reduction rather than sitting in an energy companies account gaining interest.
Not everybody of course will be affected by the previous examples but I guarantee that if you are reading this you are either trying to make money to be more comfortable or you are stuck in a financial rut and are desperately trying to get out, what I am trying to illustrate is that lack of knowledge is often the most costly mistake we make, when we look at people that are financially savvy what we are actually seeing is people that have worked out how to not give all their money away, they look for value in expenditure and they look for return on debt, if you have a house that provides more rental income than the mortgage outgoing then this is good debt, if you consume any service or utility make sure that you are only paying for what you take, and never take anybodies word as gospel always check yourself where possible so you can say with certainty that you know how much you are getting charged and why.
As human beings we are forces of nature, we have the proven ability to change the world and explore other worlds, we can create our own futures, and deal with our pasts, capable of great acts of kindness and huge atrocity the human drive and spirit is the most voracious and uncompromising force known to man.
Make a list of every thing that is keeping you awake at night and worrying you in the morning, everything that makes you snap at family and friends because you are pre-occupied when they speak to you and realise that you do have the power to change it, end the cycle of debt by not taking anymore out, pay off credit cards quickly and realise that if you can’t do that then you can’t afford the lifestyle you are leading, but if you put that lifestyle to one side for a single year you may very well be able to afford a much better one, and not pay somebody else for the privilege.
Obviously I am not a financial adviser and any situation should be looked at on an individual basis to determine the correct course of action, but you cannot lose if you find a way to pay less interest to lenders, and borrow money or goods on inflated interest because we haven’t got a “perfect credit score”.