To think getting into debt is incredibly easy?

[Username1917]

I had a comfortable upbringing, parents taught me “don’t buy what you can’t afford, saving is important” etc.

I got a job at 18 and a few months later was offered a credit card by my bank, for the first few months I paid it off in full religiously. Then I thought well I’ll just pay half this month and half next month, no big deal! Then it spiralled and I thought oh I’ll just switch to an interest free deal and pay it off before it ends. Then when the interest free deal expired I got a loan over 5 years because it was “much cheaper” per month.

Before I knew it I had debt (including PCP car) the same level as my salary, at the time that seemed very manageable.

I’m lucky that I have a well paid job now and have paid it off in full. It’s given me a right kick up the bum and now I have no debt, but AIBU to think this is not uncommon, even having grown up with parents that tried to teach me about money?

Nobody seems to understand that new money is created when it is borrowed. If you have savings it is at the expense of someone else being in debt. The only reason I was able to buy my property and car for cash is because someone else has borrowed the money to create the money for my cash purchases.

At 18, the bank gave me an overdraft of £500 which I thought was free money

Sorry but I can't get my head around this at all. You're saying that you got to adulthood with no understanding of the meaning of the words borrow, lend etc or an awareness of the phrase 'if it sounds too good to be true, it probably is'. Plus took the money without reading any of the associated paperwork.

People might choose to spend recklessly, but there's no way a NT adult can claim they didn't know what they were doing.

I’m 63 and I’ve never been in debt, never had an overdraft. We were brought up to believe if you can’t afford it, you can’t have it and I save for anything I need/want. Money is put away each week for birthdays/Easter gifts for the children in our family/Christmas. I rarely use my credit card, but if I do, it’s paid off in full each month. I couldn’t sleep at night if I had debts to pay off, especially hundreds or thousands of pounds! Just how I was brought up 🤷‍♀️

If you have savings it is at the expense of someone else being in debt

Eh?

With the technology available in the 21st Century, there's no reason why anyone should be getting into bad debt. Obviously if you lose your job or the boiler breaks that's different but to get into the situation you describe OP? That's not something I would be capable of. If I go into my overdraft, I am immediately sent a text warning that fees will apply if my account isn't balanced by midnight. I was never taught about compound interest or credit scores, it was just a fact of my upbringing that you didn't spend money you didn't have.

Yes, I have a mortgage and a student loan (through the government system). I overpay the mortgage as much as possible, about a third of my pre-tax basic pay, though my job does pay some non-guaranteed overtime so I have a little extra spending money there. I will have paid off that mortgage by the age of 35. I consider the student loan to be more of a 9% graduate tax than a debt due to the way that they're set up.

I even have a few things bought with interest-free finance on the basis that as they didn't offer a discount for cash upfront I might as well take advantage out of inflation. I would not have bought those things if I couldn't have paid cash upfront though. When I wrote off my first car, I found a Fiesta for £1,500. As it happened I could just about afford it (waiting to start a new job at the time) and would only have taken out finance if I had no alternative (new job was 30 miles away and I worked shifts so a car was essential at the time). It simply would not have occurred to me to have used finance to buy something more flash.

@bp300

Nobody seems to understand that new money is created when it is borrowed. If you have savings it is at the expense of someone else being in debt. The only reason I was able to buy my property and car for cash is because someone else has borrowed the money to create the money for my cash purchases.

Er - are you on glue? That only works for the government, only the Bank of England can print money. Savers provide the capital for borrowers to borrow, for which they receive a small sum of interest in recompense for the risk of lending.

@TriflePudding

If you have savings it is at the expense of someone else being in debt

Eh?

That's how it works look at the Bank of England website.

Money is more than banknotes and coins. If you have a bank account, you can use what’s in it to buy things, typically with a debit card. Because you can buy things with your bank account, we think of this as money even though it’s not cash.

Therefore, if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.

This also means as you pay off the loan, the electronic money your bank created is ‘deleted’ – it no longer exists. You haven’t got richer or poorer. You might have less money in your bank account but your debts have gone down too. So essentially, banks create money, not wealth.

Banks create around 80% of money in the economy as electronic deposits in this way. In comparison, banknotes and coins only make up 3%. Finally, most banks have accounts with us at the Bank of England, allowing them to transfer money back and forth. This is called electronic central bank money, or reserves.

07:00DdraigGoch

Your posts above are totally clueless. You need to learn how the debt based money system works. The only reason you have savings is because someone else borrowed them. How to you think a house my gran bought for £500 is the 50s was worth over £300k in 2007 when the England didn't do any QE in that time?

Savings at the expense of other people's debt doesn't work on a personal level at all.

Loans, credit cards etc are payment tools, no more. It works no different to if you did all your dealings in cash.

If you earned £1000 a month and spent £950 of it and had £50 leftover at the end of the month that you put into a jar in a drawer marked savings, it's exactly the same as paying from your bank account and having £50 in savings left.

Or if you spent your £1000 and decided to borrow £50 off a friend, parent, moneylender or whoever, it just means that you're £50 short the next month, because you only have £950 available, because you've already spent £50. Of course, that's how the spiral starts.

OK, if people spend less, there's less money moving around the economy, but that's irrelevant to the average person and certainly not an argument for spending all your money and putting yourself in a precarious financial position because saving some of your money is somehow a moral failing that is keeping other people in debt.

@BarbaraofSeville

Savings at the expense of other people's debt doesn't work on a personal level at all.

Loans, credit cards etc are payment tools, no more. It works no different to if you did all your dealings in cash.

If you earned £1000 a month and spent £950 of it and had £50 leftover at the end of the month that you put into a jar in a drawer marked savings, it's exactly the same as paying from your bank account and having £50 in savings left.

Or if you spent your £1000 and decided to borrow £50 off a friend, parent, moneylender or whoever, it just means that you're £50 short the next month, because you only have £950 available, because you've already spent £50. Of course, that's how the spiral starts.

OK, if people spend less, there's less money moving around the economy, but that's irrelevant to the average person and certainly not an argument for spending all your money and putting yourself in a precarious financial position because saving some of your money is somehow a moral failing that is keeping other people in debt.

Cash only accounts for 3% of money. 97% of money is credit.

I went onto my online banking, when it was a relatively new thing about 10 years ago. I was 19 and across the top of the screen was written 'you are accepted for a loan to the value of £6k', stupid young and skint me to part of the 6k then months later went back and topped the loan up to the full amount and completely wasted the lot. Yes I made that stupid choice I take full responsibility but when I think back it was shockingly easy to get and I hadn't even applied for it. Just offered it. Doubt it would be allowed now and there is probably a case to be made for miselling. I'm sure I only earned around £12k at the time!

Buy now, pay later. Spread payments over 4 years. Get a discount for signing up to a store card.

It is very easy to accumulate 'small' debts meaning that people are far closer to the brink than they realise. All it can take is a couple of crises to occur at the same time to push people into spiralling debt problems.

My younger brother lives like this, wanting more than he can afford, justifying it to himself then getting into a financial mess which DM has helped him out of.

Living the other way isn't always healthy either. My older brother lives a cheese paring life. Denies himself things which would make his life easier and more enjoyable. He will likely die with a few hundred thousand in the bank but no life to show for it.

Yes.

My friend rents and managed to run up almost £50,000 on credit cards - how do you do that!

She recently went bankrupt and they have written everything off since she has no assets and no savings at all and her income covers rent/food and expenses with very little left. She spent the last few years using credit cards to go on holiday, go out for any social activities, buy clothing etc. She is now in the position of no debt and in a couple of years could restart again she says..... she doesn't need any more clothing and has hidden cash away to fund the next couple of years (from her credit cards) so is covered.

She sees it as a new start and a way out of her debt - it is of course.. However, someone else will have to repay her debt since the banks don't survive on no money so rates higher for the ones that DO PAY UP to cover people who walk away....

Both me and my brother were raised in theory to know about debt but in practice our DM used to shuffle money around and use us to lie to DF about things. This left us both with a terrible relationship with money.

DB solved his problems by letting his wife deal with all financials and he gets spending money into an account with no overdraft etc. He has destroyed all his cards for the joint account and so on. Unfortunately, if he doesn't, he will spend what's meant for paying the bills.

I'm not quite as bad. I've trained myself not to spend on cards unless it is a specific, preplanned purchase. Cash on the other hand, I can't not spend. As a result, I never carry cash. Not such a problem these days but it used to be when small shops didn't want debit cards for small purchases.

@bp300

07:00DdraigGoch

Your posts above are totally clueless. You need to learn how the debt based money system works. The only reason you have savings is because someone else borrowed them. How to you think a house my gran bought for £500 is the 50s was worth over £300k in 2007 when the England didn't do any QE in that time?

If I have £1,000 in savings (whether in a bank account or stuffed in a mattress), I have acquired them through the simple process of putting money aside. I did not need a borrower to do this. The only point at which a borrower is required is if I want to earn interest on those savings. That interest is paid by the borrower, not the savings.

In order for someone to borrow money, there must have been someone willing and able to lend them money. Just because most liquidity is held electronically these days instead of in cash, that doesn't mean that banks can just add an extra few numbers to the balance sheet they still have to have an electronic reserve.

Only the Bank of England can create extra liquidity from nothing.

YANBU, I grew up like you but DH grew up in a family which is terrible with money. I took over our finances about a year ago and just yesterday he got a letter from his bank offering a 40k loan. We have debts, a bit less than half that. He was happy to ignore /joke about it initially, but then the moment we come up against something slightly out of reach financially he is panicking and saying we ought to take the loan because it will put us on a solid footing the worst part is we took out a loan 3 years ago which was supposed to do the same thing, and I have absolutely no idea what it ended up spent on!

He wouldn't take it out without agreeing it with me first. But it's exhausting trying to fight this and explain why I don't think it's a good idea!

I find the marketing so predatory. It's not quite as bad here as I used to find it in the UK with Lloyds, they were the worst, and my ex before DH was really really susceptible to it. That was a proper nightmare because he never thought about any consequences ever.

And once you have debt it can make it so hard to get anywhere and move forwards.

I don’t know what the answer is but I agree it is easy to get in debt. I have a £4000 limit credit card which is maxed, and PayPal credit now, which is maxed. I will have means to pay them off soon, but I don’t know how to stop myself running them up again. It is going to be so tempting to put a nice holiday on the card again once we can travel again for example. If I want something and I have room on my credit for it, I get it. It is lack of willpower more than anything else.

Absolutely and it's wrong if people make this about upbringing/will power. I have less debt in my life than I've ever had and you know the magic ingredient? Money! We have a good income and inherited some. We've never had less debt, now it's just the mortgage.

I had credit cards and an overdraft from when I was 19 and went to uni. We had no savings, I had no savings, my parents couldn't pay my rent or for my food or any of those things. Eventually I got work to support myself which helped but not always easy studying full time too.

My dad lived in poverty and the problems he had with debt had such a bad impact on his life, having taken over his finances after he passed away he was ripped off by everyone going (£800 for his home insurance a year for a tiny house, £250 a month gas and electric, lost goes on..) and treated like a criminal. Virgin messed up and didn't log his death properly so I ended up with 30 letters within a week when his account was £30 in debit all very threatening. All these companies grovelled when I gave them what for, they 100% took advantage. He worked full time his whole life, had a small mortgage but it's a snowball effect and so many companies make their money from the wrong people. I found it really upsetting how companies that seemed to bend over backwards for me and give me real cheap cover or services would fleece my dad.. because they could.

draigGoch

If you have £1000 on the bank then than money has been been borrowed in existence by someone else borrowing it. If you have cash that is different but cash only accounts for 3% of money. 97% of money was created by credit.

So iexplain to me how were houses worth £500 in 1950s worth £300000 in 2007? The Bank of England didn't start Quantative Easiing until after the financial crisis.

Absolutely and it's wrong if people make this about upbringing/will power. I have less debt in my life than I've ever had and you know the magic ingredient? Money! We have a good income and inherited some. We've never had less debt, now it's just the mortgage

But sometimes it simply is upbringing and willpower. Obviously some people don't have sufficient income to cover essentials, but plenty of people do, but only if they take the affordable option.

You can buy a perfectly decent mobile phone for around £150, or you can pay over a grand for the latest one.

You can buy a decent small basic car for £5k or less or you can pay five to times that amount for a bigger, newer, flashier one.

You can shop for a family for around £100 a week in one of the cheaper supermarkets or you can spend double that or more by going round Waitrose and not looking at the prices and buying the fancy version of everything.

You can wear the clothes you have for months, if not years at a time, or you can buy a new outfit for every night out and donate the clothes to charity afterwards.

If you fancy a pizza, you can get a nice supermarket one for about £3 or you can get a Dominos delivered for about three times that amount, minimum.

Etc etc etc. Over time, take two people with the same income and one always takes the cheaper option, they could end up with lots of savings, whereas the person who has the expensive option is in huge debt.

@bp300

draigGoch

If you have £1000 on the bank then than money has been been borrowed in existence by someone else borrowing it. If you have cash that is different but cash only accounts for 3% of money. 97% of money was created by credit.

So iexplain to me how were houses worth £500 in 1950s worth £300000 in 2007? The Bank of England didn't start Quantative Easiing until after the financial crisis.

But that's a different argument. The OP was talking about personal debt and how small differences in spending decisions and attitudes to saving can make a huge difference to whether someone is in debt or not.

The price of houses etc etc is a completely different issue.

OP, maybe you got in debt because you had a comfortable upbringing and know you have your parents are a cushion.

I grew up poor and have never wanted to be in debt, as l never had the luxury of being relying on anyone to bail me out. No credit cards, no loans, nothing (student loan now paid off and mortgage being paid off).

It is horrendously easy. I can't begin to think how many of the clients I have worked with over the years have had debt issues. Many of them are utterly clueless about how interest works, and just couldn't get that sometimes only making the minimum payment on cards can often not even cover the interest, so the debt increases, and they're paying interest on the interest.

I've had clients who have a fistful of store cards, and will say things like "I've still got £500 on my Argos card" as though that's money in the bank, and not get that spending that £500 will cost them a lot more than £500 in the long run.

Because I worked with people on low incomes, they always got cards like Aqua that had high interest rates, so were being penalised for being poor (I realise that this is partly because they are at a higher risk of defaulting).

I'm also shocked by how quickly people can get credit again after having debts written off. I've helped clients to get Debt Relief Orders, only to have them re-referred a couple of years later, up to their necks in debt again.

Financial education should be taught in schools imo. People need to understand the full cost of buying on credit, and there should be stricter controls on how much credit any individual can rack up overall, not just with one lender.

BarbaraofSeville

But if there was no debt there would be no money to do anything. While there is a debt based money system we need people to keep borrowing to keep the plates spinning. Just look what happened in 2007 when the banks stopped lending.
When people borrow money the Interest element doesn't exist so the banks need to keep lending more credit to create the money to pay the interest on the existing loans.