Becoming debt free
Discussion
dan_87 said:
OP, I like what Dave Ramsey has to say. Apart from biblical finance, he is out helping people who have completely lost their way, by offering a way to change their behaviours rather than just looking at the maths. That said, he appears to have done very well off the back of it.
My only real issue with what he says is the complete lack of finance/payments. I'll actively make use of 0% because in my mind, it's free lending. I'm disciplined enough to know I can afford to pay it upfront, bit why would I choose to do so? Lukas239 said:
My only real issue with what he says is the complete lack of finance/payments. I'll actively make use of 0% because in my mind, it's free lending. I'm disciplined enough to know I can afford to pay it upfront, bit why would I choose to do so?
In the era of 1-3% fixed mortgage rates the reason to do it is drastically reduced. Lukas239 said:
Have developed this unhealthy obsession about becoming debt free (minus the mortgage). Came across a Dave Ramsay clip on YouTube which outlined the importance of ridding yourself of debt.
Now whilst I don't completely agree with his concrete views, it is appealing to know what you earn is yours and not owed to anyone else. Currently have 3 seperate lines of debt (2 very small amounts of 0%, 1 significant amount at a horrendous 9%).
My question, albeit slightly philosophical, is would you live a beans and rice life whilst doggedly paying off debt? Our would you strike a balance, pay them all gradually whilst still enjoying some luxuries?
Debt free if the debt is a result of excess consumption is a good thing. If the debt is part of a practical plan to increase income or business prospects then prudent debt is a very, very good thing. Now whilst I don't completely agree with his concrete views, it is appealing to know what you earn is yours and not owed to anyone else. Currently have 3 seperate lines of debt (2 very small amounts of 0%, 1 significant amount at a horrendous 9%).
My question, albeit slightly philosophical, is would you live a beans and rice life whilst doggedly paying off debt? Our would you strike a balance, pay them all gradually whilst still enjoying some luxuries?
Consumer debt is like heroin. Absolutely fine if the consumer can self regulate but few can and it’s highly addictive and destructive. Plus it’s the vendors who make all the money while the consumers systematically impoverish themselves.
To answer your question someone would need to know the size of the debts, their expiry dates and their purpose before you can really look at the best way to move forward.
But working in the assumption that these are consumer debt related then absolutely any of the solutions will involve the first step of understanding why you ended up in this situation and ensuring that that behaviour stops immediately.
An important little snippet to also appreciate is that there is no such thing as 0% lending. No one has lent you money for no return. What they’ve done is got you to pay all the funding cost upfront in exchange for signing a deal with the devil that allows them to rape the crap out of you at X date in the future if you fail to honour the terms of that contract. And when the cost of something is hidden from the consumer we know for a fact that it will be higher than if the cost were explicit. There is not a lot anyone can do about 0% marketing but it is important to appreciate that it is the Katie Price of the consumer finance world, a total deception.
You also need to explain what you consider ‘luxuries’. The whole reason this country carries so much consumer debt is because so many people like their little ‘luxuries’.
The whole living on beans thing I am not a fan of unless someone has reached the point of their home being at risk and even then they shouldn’t even have time to stop and eat beans because of all the s
tty night jobs they will be doing to fix the mess they put themselves in. The key is to be honest as to how you ended up where you are and to stop that lifestyle immediately. Then it’s about focusing on the most toxic bit of debt and drawing up a plan for ensuring it is paid down, preferably at a quicker rate than in the formal schedule. What you really want to be doing is using this event to gently and sensibly shift yourself from being an excess consumer to being a modest saver. You want to use that 9% loan to your advantage. Set up a savings account to pay the excess repayment element you decide upon into each month. Just get into that habit of putting some money into it while also getting into the habit of not buying so much stuff. When the amount is large enough you want to clear that 9% loan and then just continue exactly as you have been doing, not spending so much and saving that little bit.
The nemesis for consumers is having a female lifestyle of going shopping and that mindset of ‘treats’ for yourself. The men who have built up horrible consumer debt piles all have the same thing in common, at some point in the past they suddenly thought that they were princesses and so started shopping for leisure and buying themselves little luxuries. It’s that mindset that a consumer needs to change first before they can move forward.
Lukas239 said:
dan_87 said:
OP, I like what Dave Ramsey has to say. Apart from biblical finance, he is out helping people who have completely lost their way, by offering a way to change their behaviours rather than just looking at the maths. That said, he appears to have done very well off the back of it.
My only real issue with what he says is the complete lack of finance/payments. I'll actively make use of 0% because in my mind, it's free lending. I'm disciplined enough to know I can afford to pay it upfront, bit why would I choose to do so? dan_87 said:
Once you see through the ‘debt free’ bit, its all to do with creating wealth; how can you gain wealth if you give it all away making payments- You’re only making someone else wealthy on the process...
If you need to pay for education or buy tools or buy transport to the place of work (sometimes dictated to you by the car allowance rules else a £500 car could suffice but more often than not it’s max 3 years old )Welshbeef said:
dan_87 said:
Once you see through the ‘debt free’ bit, its all to do with creating wealth; how can you gain wealth if you give it all away making payments- You’re only making someone else wealthy on the process...
If you need to pay for education or buy tools or buy transport to the place of work (sometimes dictated to you by the car allowance rules else a £500 car could suffice but more often than not it’s max 3 years old )There’s always a balance in play between expenditure and saving. At either end is an unhappy situation, either bankruptcy if you spend it all or a miserable existence if you never spend but somewhere in the middle is long term happiness
Building adequate wealth for the long term has to be a good goal however hard it may be for a specific individual.
Some people are just clueless. I am very fond of my neighbor, she brings us food over and they are generally very nice.
They paid 220k for their house in 2003 or 2004 and have never refinanced it since. They've been paying 5 or 6 pc on their mortgage for some 15 odd years on the standard variable rate. Despite sitting on a substantial amount of equity (their house is a little bit run down but it's worth 500k no bother).
She didn't even know how to remortgage it I had to sort it out for her with a broker I knew.
They've basically (and certainly over the last 8/9 years)been paying 100pc too much mortgage interest and were utterly oblivious.
Some people just don't care or understand I guess.
They paid 220k for their house in 2003 or 2004 and have never refinanced it since. They've been paying 5 or 6 pc on their mortgage for some 15 odd years on the standard variable rate. Despite sitting on a substantial amount of equity (their house is a little bit run down but it's worth 500k no bother).
She didn't even know how to remortgage it I had to sort it out for her with a broker I knew.
They've basically (and certainly over the last 8/9 years)been paying 100pc too much mortgage interest and were utterly oblivious.
Some people just don't care or understand I guess.
princeperch said:
Some people are just clueless. I am very fond of my neighbor, she brings us food over and they are generally very nice.
They paid 220k for their house in 2003 or 2004 and have never refinanced it since. They've been paying 5 or 6 pc on their mortgage for some 15 odd years on the standard variable rate. Despite sitting on a substantial amount of equity (their house is a little bit run down but it's worth 500k no bother).
She didn't even know how to remortgage it I had to sort it out for her with a broker I knew.
They've basically (and certainly over the last 8/9 years)been paying 100pc too much mortgage interest and were utterly oblivious.
Some people just don't care or understand I guess.
I’d assume that due to the fact they have what 8-9 years to go the % charge delta now isn’t so great They paid 220k for their house in 2003 or 2004 and have never refinanced it since. They've been paying 5 or 6 pc on their mortgage for some 15 odd years on the standard variable rate. Despite sitting on a substantial amount of equity (their house is a little bit run down but it's worth 500k no bother).
She didn't even know how to remortgage it I had to sort it out for her with a broker I knew.
They've basically (and certainly over the last 8/9 years)been paying 100pc too much mortgage interest and were utterly oblivious.
Some people just don't care or understand I guess.
But yep lots of money wasted - however if there were not people like that then the top rated would go up else the bank wouldn’t make enough profit.
DonkeyApple said:
An important little snippet to also appreciate is that there is no such thing as 0% lending. No one has lent you money for no return. What they’ve done is got you to pay all the funding cost upfront in exchange for signing a deal with the devil that allows them to rape the crap out of you at X date in the future if you fail to honour the terms of that contract. And when the cost of something is hidden from the consumer we know for a fact that it will be higher than if the cost were explicit. There is not a lot anyone can do about 0% marketing but it is important to appreciate that it is the Katie Price of the consumer finance world, a total deception.
Not really. Some 0% deals ARE 0%. Perhaps the goods could be found slightly cheaper elsewhere, comparable, or what not but 0% does exist.anonymous said:
[redacted]
This is true, but the lending companies view this as lending to a group - in so much as they know that they’ll get a huge return off a small number of people, while others pay it off fully in the allocated 0% timeframe. It’s like credit cards. I put literally everything possible on mine, and pay it off each month. I’ve had multiple long haul business class flights and upgrades at their expense - it’s 50k+ in redeemed value. But, for every one of me, there are boatloads of others who are paying 28%apr until they die.
They hate me, individually, I’m sure - but I belong to a group that makes them money.
red_slr said:
DonkeyApple said:
An important little snippet to also appreciate is that there is no such thing as 0% lending. No one has lent you money for no return. What they’ve done is got you to pay all the funding cost upfront in exchange for signing a deal with the devil that allows them to rape the crap out of you at X date in the future if you fail to honour the terms of that contract. And when the cost of something is hidden from the consumer we know for a fact that it will be higher than if the cost were explicit. There is not a lot anyone can do about 0% marketing but it is important to appreciate that it is the Katie Price of the consumer finance world, a total deception.
Not really. Some 0% deals ARE 0%. Perhaps the goods could be found slightly cheaper elsewhere, comparable, or what not but 0% does exist.anonymous said:
[redacted]
Absolutely. But those deals aren’t consumer credit agreements designed to facilitate an uplift in transactions. The purpose of 0% credit card offers is to attract a larger number of consumers who either do not currently pay off their credit card monthly or for whom the zero deal will ingrain that habit into them. It gets the consumer used to running a debit balance in the thousands so that when the deal runs out you can start levying 20% on that sum. Again, the card industry will work with content providers to give the overall impression that consumers in these zero deals are savvy and switch between providers at expiry and keep rolling it over for free but obviously if that were the case then the lender would not be offering the product. The product is offered because it makes billions and billions of profit.
A few people will switch providers but you will eventually capture one who can’t switch anymore because their balance is too big and then you just harvest the crap out of them at 20% until you’ve got them in court with nothing left to extract. With each switch the consumer gets more and more used to and comfortable with their large debit balance. It’s like a benign cyst, a little bit concerning at first but quickly becomes part of the family even as it gets larger and larger.
The key is that as a lender you know that the longer your customer gets used to that debt pile the more they grow it and the more you let it grow and help it grow by offering new credit limits or sending discount coupons to get them to get closer and closer to the trap. What you know is that at some point the consumer will have too big a pile to be able to switch and then it’s time to bend them over and pound them at 20% plus other default charges until they are homeless.
Zero card deals are like those discount lease deals on cars, for the savvy minority they allow you to get some of the savings back that you used to be able to get through using cash but the products only exist because the majority of consumers dupe themselves into spending more and buying more that they don’t need getting closer and closer every day to sucking wang down at the docks to top up the State pension.
red_slr said:
Not really. Some 0% deals ARE 0%. Perhaps the goods could be found slightly cheaper elsewhere, comparable, or what not but 0% does exist.
Something like 12-month interest-free finance will cost the retailer around 3% to 7% of the amount being financed, depending upon the product, the customer mix and the retailer's finance volumes.The retailer of course can't charge more if they are claiming to offer interest free finance, as that would be against the law. But unless you have a very high margin product, retailers will always build it into the price.
DonkeyApple said:
red_slr said:
DonkeyApple said:
An important little snippet to also appreciate is that there is no such thing as 0% lending. No one has lent you money for no return. What they’ve done is got you to pay all the funding cost upfront in exchange for signing a deal with the devil that allows them to rape the crap out of you at X date in the future if you fail to honour the terms of that contract. And when the cost of something is hidden from the consumer we know for a fact that it will be higher than if the cost were explicit. There is not a lot anyone can do about 0% marketing but it is important to appreciate that it is the Katie Price of the consumer finance world, a total deception.
Not really. Some 0% deals ARE 0%. Perhaps the goods could be found slightly cheaper elsewhere, comparable, or what not but 0% does exist.Sofa company B sells similar leather sofa for £2500. They offer finance OTC at 6% or whatever or pay up front.
Comparable? I think so.
Secondary products are usually sold too, at massive margins. Damage insurance, stain guards etc.
That’s the annoyance of modern consumer financing in that it is now by far the most dominant method of transaction that even those who do not need finance are paying junk levels of consumer finance in their transaction. It’s the same when buying a car. There’s so much profit in the finance that they can happily let a consumer get a discount on the inflated price using a house debt package which they then pay off in 14 days. Not than more than about 8 people a year actually do that. 
It’s the inflated RRP to allow the true funding cost to be masked that is somewhat irritating. It doesn’t really matter what your credit rating is your shopping at the cost of junk rates much of the time.
It’s the inflated RRP to allow the true funding cost to be masked that is somewhat irritating. It doesn’t really matter what your credit rating is your shopping at the cost of junk rates much of the time.
How you get people off the juice (financing) is tough.
Take a sofa 4 years 0% - so they take the deal but in reality they should pay 2x the debt each month one to new sofa fund and one to the sofa debt. When cleared & hopefully sofa lasts more than 4 years you already have the funds to buy outright
Not multiply that for carpets bathrooms kitchens TV holidays and car - I’m pretty sure it’s way too much for most people to afford.
So once in the cycle the only way out is to try to chip away at one or two/a few of them so those forever more you pay cash (or in your mind you’ve set that provision aside for it - nothing wrong with reallocating that provision for other purchases to avoid new financing).
It’s also the fact people possibly expect say sofas to last 2-4 years then bin it......crazy. Make it last 10-15-20 years (as they should) and you’ll get off the juice cycle.
Take a sofa 4 years 0% - so they take the deal but in reality they should pay 2x the debt each month one to new sofa fund and one to the sofa debt. When cleared & hopefully sofa lasts more than 4 years you already have the funds to buy outright
Not multiply that for carpets bathrooms kitchens TV holidays and car - I’m pretty sure it’s way too much for most people to afford.
So once in the cycle the only way out is to try to chip away at one or two/a few of them so those forever more you pay cash (or in your mind you’ve set that provision aside for it - nothing wrong with reallocating that provision for other purchases to avoid new financing).
It’s also the fact people possibly expect say sofas to last 2-4 years then bin it......crazy. Make it last 10-15-20 years (as they should) and you’ll get off the juice cycle.
Welshbeef said:
How you get people off the juice (financing) is tough.
My answer - it starts with good parenting. I've posted before but I had some really good examples which happened to me when I was very young and which stuck with me. All related to showing the principles of the pleasure in saving, not rushing into making rash purchases, and knowing the value in saving up for what you really needed, whilst avoiding the temptation of instant gratification.
I genuinely don't have any debt save a mortgage, and even that represents about 20% of the worth of my house, living debt free is possible, it just takes planning and discipline ( and I am talking as someone who just came back from San Francisco , last year we went to Jamaica, we don't scrimp, we do save)!
wibble cb said:
I genuinely don't have any debt save a mortgage, and even that represents about 20% of the worth of my house, living debt free is possible, it just takes planning and discipline ( and I am talking as someone who just came back from San Francisco , last year we went to Jamaica, we don't scrimp, we do save)!
If you don't scrimp and do save one suspects you earn a reasonable wage. Could you do the same on the national average salary?Integroo said:
wibble cb said:
I genuinely don't have any debt save a mortgage, and even that represents about 20% of the worth of my house, living debt free is possible, it just takes planning and discipline ( and I am talking as someone who just came back from San Francisco , last year we went to Jamaica, we don't scrimp, we do save)!
If you don't scrimp and do save one suspects you earn a reasonable wage. Could you do the same on the national average salary?Gassing Station | Finance | Top of Page | What's New | My Stuff