What’s Your Attitude to Debt?

Written by Karen Bryan

attitude to debtI have a very mixed attitude to debt.  If we hadn’t taken out mortgages to work our way up the housing ladder, starting from a one bedroom flat in east London, we would never have been able to afford our subsequent homes. In fact, if we had been less risk averse and borrowed more to buy larger homes, we could have made more money during the housing boom.

However, debt that you can’t effectively manage can lead to all sorts of financial problems. I think quite a bit depends on the interest rate you will have to pay on the loan and what you will use the loan for.

Once, we had an interest free loan for 50% of the price of a two year old car that we bought, which meant we didn’t have to take the full price of the car from our savings, but could meet the monthly payment due on the remaining 50% from our earnings.

Credit card balances seem to attract a pretty high rate of interest of around 16%. I always pay off the full balance every month. It seems to be possible too keep shifting your credit card balance between 0% interest offers such as the Halifax Balance Transfer Card which currently offers 22 month interest free.. Although there is usually a balance transfer fee of around 3%, if inflation is higher than this, they are still doing well with this tactic, as long as they don’t get caught out by lack of offers and/or a change in their financial circumstances when the time comes to shift the balance.

I still think that there are some advantages to the old fashioned idea of saving up to buy something you want, as opposed to borrowing to have it now. Living within your means isn’t going to make you rich, but it can give you peace of mind and offer more of a buffer if your finances take a turn for the worse. If you always maintain an emergency fund, you can dip into that to cover sudden expenses, instead of having no option but to take out a loan or max up on the credit cards.

Conversely, taking on a lot of debt could work in your favour and give you a sizeable profit to improve your lifestyle and/or add to your long term savings.

Read our tips on how not to get into debt.