Debt, Can We Live Without It?

1st July 2016
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By definition debt is when one party borrows money from another party and promises to pay at a later agreed date with interest added on.

Debt allows for the borrower to use the money to buy things that they would not have been able to afford but debt can be recovered through common law action.

The highlighted terms above are very important and we will focus on them in trying to find out whether personal debt is always the answer or could be avoided.

Debt

Borrows Money

Why do we borrow money? To buy stuff most will say.

If you go into an electrical shop and buy a large screen TV on credit then you have borrowed money to buy ‘Stuff’.

The electrical company usually does not give you the credit, there is another company usually a bank of some sort that pays the electrical company the price of the TV and a thank you fee on top and they (Bank) get back their money from you (fingers crossed).

So the question is could you have avoided this debt by saving and buying the TV Cash?

On 22/06/2016 Curry are selling a 65” Samsung SMART 4K ULTRA HD for £999.

You can save £84 a month and buy this TV in a year for cash and you will be guaranteed it will be cheaper and if you are savvy and go for it during the black Friday bonanza weekend you can get if for less.

Meaning you could only need to save for a fraction of the amount.

If you buy this TV on credit you could pay £70 over 24 months to get the same TV.

If you can afford £70 why not add £14 more a month and you could even buy the TV in less than 12 months.

This example shows that sometimes we rush to borrow money to buy things when actually we could get them in the near future a fraction on the cost.

Promises To Pay At A Later Date

A debt comes attached with an agreement to pay it back at a promised date.

When borrowing money do make sure that you will be able to afford the repayments at that time.

Most people realise that a big purchase on credit during the Christmas period becomes unaffordable after the festive season when the credit card bills pile up.

Buy the Christmas gifts using cash and try to buy the presents earlier to avoid panic or impulse buying or even yielding to pester power.

Try giving people gifts cards so they have a choice and you do not feel the pressure to buy them something big.

A £100 gift card to a teenager seems big but compare to the latest headphones and video games this might actually be a bargain

Keeping up with repayments avoids hassle of dealing with debt collectors and borrowing from Paul to pay Peter.

Borrower To Use

Always use the money borrowed for the intended purpose.

There is a guy who borrowed £3000 pounds to buy a decent used car for commuting to work.

When the credit was approved the guy decided to treat his girlfriend to a £2000 holiday.

He was left with only £1000 from the borrowed loan, which he used to purchase a £1000 12-year-old car that broke down in less than 6 months and required £500 repairs and a £400 MOT.

The guy ended up borrowing an extra £1000 from family to get the car going.

Sometimes it is better to spend the borrowed money on the right things that you intend in the first place.

Debt Can Be Recovered.

Not keeping up with the payments could result in action being taken against you.

Your credit rating and that of people linked to you financially could suffer and any future attempts to borrow could be affected negatively.

Dealing with debt collectors is usually a harrowing and psychologically draining process.

Going to courts and receiving CCJs or being bankrupt can affect future jobs prospects.

Keep tabs on your credit card to ensure you can afford the repayments.

Minimising debt is the best way to ensure that the repayments are low and affordable.

A debt free life would be the best but most people can’t afford it.

Over to you…

Can you live without debt?


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