Written by Karen Bryan
If you owe a lot of money you’ll be paying interest on the loan. That interest could be money in your pocket. Of course if you buy something that will increase more in value than the interest you’ve paid, then it’s a worthwhile financial investment. However if you’re borrowing money and paying interest on that loan, something that’s losing value like a new car or designer clothes, you’re suffering a double loss by paying interest and owning something which is worth a lot less than you paid for it.
Debt on credit cards can be pretty insidious, as if you only pay off the minimum amount every month, the outstanding balance just keeps increasing through compound interest, making it harder to ever pay off the loan. A personal loan from a bank loan usually offer a lower rate of interest than a credit card and the repayments are structured so that the loan is paid back after a specific period of time.
The only loans we’ve ever had/currently have were mortgages, one interest free loan for 50% of the price of a used car and credit card balances which are paid off in full every month.
We always paid off our mortgage as quickly as possible. That meant that we didn’t get the cheapest mortgage deal, as they usually have penalties for early repayment. However, I’m sure that the extra we paid in interest during the time we held the mortgage was tiny compared to paying interest on a mortgage for 25 years.
I think a combination of our attitude to debt and the fact that neither of us had a permanent job (my husband was on fixed term contracts and I was/am a freelancer) encouraged us to live below our means. We knew we couldn’t be sure of future income, so didn’t want to over stretch ourselves the way someone who (thought they) had a permanent job might do. We were also aware that we needed to build up savings, such as tax free Cash ISAs, as a financial buffer in case our income was reduced.