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?

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

Exactly, sorry but you did. When people claim they had "no idea" that they had to pay back money spent on credit cards that's obviously false. It's just an excuse to buy what they want.

What the thread title should read is "it's really easy to be greedy" and with that I would agree. I don't spend on credit but I do overeat so I understand the impulse from that point of view.

@BarbaraofSeville

A question for the people who say it's too easy to get into debt, would you be happy if it was harder to borrow money?

For example:

No overdrafts at all and all credit cards worked as charge cards in that the balance was paid off every month and if you couldn't do that, it was converted to a six month loan and stopped working for that time period, so you basically had to live on whatever income you had. Klarna and similar schemes banned. Forced cash based budgeting if you like.

All your bills are taken off your salary straight away, an amount put away for annual expenses and you have to make do on what you have left until the end of the month.

No such thing as a 'free' mobile phone on a contract. All phones have to be bought outright and you just have to buy what you can afford. Same for other 'non essential' household appliances (yes phone is essential, but a £1000+ iphone is not), also things like holidays and other discretionary spends like Christmas and takeaways.

Very restricted credit available very cheaply for household essentials like washing machines but you basically have to ask a bank manager in person for approval, who will go through your finances and spending to make sure you're being responsible with your money.

So no-one can get into debt and everyone has to live within their means, which are sufficient to cover essentials and some luxuries, but not everything that anyone could ever want, we're talking about the average majority, not those who genuinely don't have enough for the essentials or any luxuries, but not those who can have everything they want without compromise.

You could have a fancy phone or a holiday for example, but not both, if you wanted to go on holiday, you'd have to make do with a £150 smartphone not the latest £1k+ version.

So no-one would be able to get into crippling debt, so we'd all be happy with that?

Why would it need to be that strict? I don't think a £1000 overdraft should be offered to a recently turned 18 year old earning £4.50ph like I was. That doesn't mean I think no one should ever be allowed to borrow money. It should just be done more responsibly.

@RandomLondoner

To all those (including OP) questioning bp300's comments on where money comes from, you are wrong and he/she is right.

Though I think his/her point is irrelevant to the thread discussion, bank deposits which form 97% of UK money is created by commercial banks, not the Bank of England, and it comes into existence when they make loans (and vanishes when loans are repaid.) Banks do not get money and lend it, they create it out of thin air when they make a loan, and it then circulates through the banking system, the net new money vanishing again when the loan is repaid. This information is on the Bank of England web site.

It is mind-blowing, and the opposite of what we've always thought happened, but it is right.

(One of the reasons I think it's irrelevant to the tread is that we could still have money without having commercial banks create it be issuing debt, the Bank of England could just create and manage the supplyl. But that's not the system we currently have.)

Thank you, you have explained it better than I did. I would agree in some respects it is irrelevant but I think it is also people need to know the reasons why the government will always try to encourage people to keep borrowing even though individually its not in our interest to do so. The reason many in the things being suggested like learning about loans in schools will never happen as the government needs us to keep borrowing.

BarbaraofSeville

I learned about compound interest in maths classes in primary school.

Don't they do that any more?”

Our eldest is 26 and was taught at school. Our youngest is 18, grade 8 maths GCSE , it wasn’t taught at his school .

Dad taught him money management at home (within his area of expertise).

It’s far too easy to get into debt nowadays - ccs and wretched store cards being pressed on people who see them as ‘free money’ - but I do think it can sometimes be partly down to upbringing. The two people I know well who ran up a lot of debt (one my generation, one a dd’s friend) were brought up in easy financial circumstances and were used to having more or less whatever they wanted, when they wanted it. So when it came to earning reasonable money they were still spending whatever they liked - and being bailed out by parents - over and over. In such cases I do certainly blame the parents for not making a stand.

One eventually went bankrupt, the other taught herself - through necessity - to be much more careful.

Dh and I were brought up relatively skint and were always used to being pretty careful, even when we no longer needed to. But credit was so much harder to come by when we were young. As a student I would have to see the manager at my own bank branch for a small overdraft, and later, when I was earning, in order to get a loan to buy my first (far from new) car.

I did have a cc once they were first available (the old Access) but never used it for anything I couldn’t repay within a reasonable time.

I do sometimes wonder how dh and I would have fared if credit had been so ludicrously easy to come by, as it is now.

I think it's a push-pull issue.

Some companies make it easy to obtain credit cards and to buy products on credit. If they didn't there would be criticism about how difficult they make it for people to buy on credit.

Then there is the pull: consumers want easy credit. They want to buy items that they don't have ready cash for - whether it's a need or a want.

I think there are a lot of parallels to be drawn between weight gain and debt.

Gain a bit of extra weight/debt by splashing out on a holiday and having a few extra cocktails. If you then get home and 'pay' for it with a financial and food diet then there probably wont be a problem.

Lifestyle weight/debt gain can be a hard to break. This means changing the habits, perhaps of a lifetime. Making financial/food 'healthy' choices every time. Choosing the financial salad rather than the chips. Not clearing your financial plate every month.

The debt and weight gain of poverty can be down to having less choice. Low income means that the brink of uncontrollable debt is always close. It doesnt have to be large debt just more than can be paid off, the result is misery (Mr Micawber).

Debt on low income can be more complicated than it seems. If your fridge breaks and you havent got £100 to buy a cheap new one outright then the alternative may be to buy a bigger more expensive one on 'easy' payment terms. I looked on a 'pay weekly' site and the cheapest fridge was a fridge/freezer.

Might add, when dh was once about to pay a substantial amount in a major chain store, he was offered a store card with an automatic 10% off the current bill.
He told them truthfully that he’d never use it again and would only cut it up straight away.
They said that was up to him, but he could have it anyway.
So he did, for the 10%, and cut it up.
It did make me wonder - do staff get bonuses or points for persuading people to get store cards? Presumably they do.

I don't understand what you mean by 'easy' - you mean getting into debt because interest rates are too difficult to understand?
Unless you were forced to borrow due to adverse circumstances it is very easy to understand the principle - do not borrow what you can't afford to pay back, do not borrow over a certain percentage of your income.
People who make dumb decisions are just stupid. There's no excuse.

Oh, it's ridiculous! I never take things on loan, always pay things off in full when I buy them (with the exception of my house, and I take out a mobile contract because I think I would be replacing my phone every year if I bought it upfront).

But you get offered credit and 'buy now pay it later' deals at every turn! When I bought my car, I wanted to buy a 5yr old one in cash (plus the deposit from my old car) but he did his utmost to get me to take a new one on hire purchase - meaning I would have a huge lump sum to pay in 3 years time, or just get a new one on more credit.

It's more appealing to get something shiny and new and figure out how to pay for it later than wait and save for it.

I remember being offered, I think in the 90s, maybe 80s a store card whenever I was buying anything and then for the most part, they disappeared and then being horrified at all the payday loan type companies with extortionate interest rates. I know a number of these have now disappeared. I was surprised to see Klarna crop up when I was making a very small purchase online recently. Are they and clearpay the new store card equivalent?

Don't get me wrong, credit used well is a good thing but for some people can be a disaster.

I've been a sahm for five years as had three dc in quick succession. No income to my bank apart from dh switches some over to me every month. I still have huge available amounts of credit on three different credit cards.
Would be very easy to get into lots of debt very quickly.
When you apply for credit they can see if you have money going in your bank each month I think? So surely they should check people yearly if circumstances have changed and adjust their available credit, that's just being responsible lenders isn't it?

I don't think a £1000 overdraft should be offered to a recently turned 18 year old earning £4.50ph like I was. That doesn't mean I think no one should ever be allowed to borrow money. It should just be done more responsibly
Same here.
I don't think there is a need to ban credit or make it horrendously difficult to get, just have more responsible lending that takes account of people's circumstances.
At the moment there's a lot of irresponsible lending because companies know they will make more money off people trapped in a debt cycle. There's a financial incentive to lend huge amounts to people beyond their ability to pay.

Debt is so normalised! I didn't grow up in the UK and my parents always made it seem like debt was the worst thing that could happen to you. Moved to the UK and bank kept offering me high spend, loans (for what?), all kinds of shit I didn't need. This normalisation should stop.

One thing they can do with credit cards is undo the reduction in minimum payments and probably also reduce credit limits, I agree. I have a total of credit limits available that exceed my annual gross salary, but I only use credit cards for routine spending and to make money from interest free deals, but obviously am winding this down now.

When I got my first credit card, it had a £500 limit, which was about a month's income, and it had a 5% minimum payment.

Now minimum payments can be as low as 1%, which barely covers the interest (it has been worse than that, as in minimum payment was sometimes below interest charged - now it has to at least cover the interest and any charges plus 1% of the balance).

But as well as taking longer for people to repay, it makes the amount of debt at which people notice they have a problem much higher.

People generally think they're OK with their credit card, if they can make the minimum payment so when it's 5% a £200 pm minimum payment would be a balance of around £3000, depending on the interest rate, but with a 1% minimum payment rate, a £200 minimum payment might be around £15-20k debt, so a very big amount to deal with.

@Sunflowers095

Depends. Financial services are already very strictly regulated and grown people should be responsible for reading/researching and considering finances.

If someone is in a tough position (job loss, illness, becoming a single parent, caring responsibilities) then yes I can imagine it's easy to get into debt and you don't have a choice.

But many people don't need a car (or if they do, why not get the cheapest one), a credit card, a huge overdraft, who knows what else. Way too many people get into debt over gadgets, holidays or things that are luxuries. So many people in debt/skint but with iPhones and huge flat screen TV's.

Unless someone has learning difficulties/mental disabilities they should be capable of managing their finances (as I said, I don't mean this applies to people in genuinely difficult situations).

Often it’s more expensive to buy the cheaper car, as you have to have a significant amount spare for repairs.

In my twenties I was in a position where it made more financial sense to get a lease car for £300 per month as my old car was needing hundreds of pounds worth of repairs every couple of months, so I couldn’t save up to buy a new car, and couldn’t do without a car. So it made financial sense to get a lease as I then had a reliable car sorted (the relief! So much relief) with no unexpected payments, just the money taken for the lease each month.

Lots of people with lease cars have them for this reason.

Sure it’d have been cheaper overall to find the money to buy a better second hand car but if you don’t have the money available and can’t save it because every time you put a couple hundred aside it gets sucked up by car repairs then you work with what’s available to you.

Still glad I got that lease, turned out to be a great decision.

@GETTINGLIKEMYMOTHER in the past definitely. Store staff were far more heavily targeted on credit selling than cash selling. It is probably true now.

I think most people who take a buy now/pay later/spread the payments offer intend to pay it off but then the next thing comes along and a minimum payment gets made.

It is also easy to use the easy credit to make a more expensive purchase than would have been made just for cash.

Need a new sofa? Pop along to DFS. You only need a 2 seater sofa but wouldnt a corner sofa be nicer and you could replace that old armchair. Wouldnt leather be more practical than fabric? It will cost £2000 but you can spread the payments over 4 years. Two years later you move house, the corner sofa wont fit in your new house so you try to sell it on ebay thinking that as it is only 2 years old you should be able to get half of the £2000 back. So you list it with a reserve and get no bids over £200.

We have pets so dont buy new sofas (dog, cat and husband can make a new sofa look old in a matter of weeks). We buy very nice quality second hand sofas for a snip of what they cost new and the current owner is still paying for.

@GETTINGLIKEMYMOTHER

Might add, when dh was once about to pay a substantial amount in a major chain store, he was offered a store card with an automatic 10% off the current bill. He told them truthfully that he’d never use it again and would only cut it up straight away. They said that was up to him, but he could have it anyway. So he did, for the 10%, and cut it up. It did make me wonder - do staff get bonuses or points for persuading people to get store cards? Presumably they do.

More like targets, not bonuses. They’re expected to get a certain number of cards per month and if they don’t they’re written up and put on a performance plan. It’s horrible, they hate it just as much as customers.

Maybe now there's going to be hardly any high street clothes shops left we don't have to worry about being pestered to buy store cards and we only have the likes of Klarna etc to worry about.

They're currently unregulated and I don't think charge any interest, but they're a lot quicker to get the debt collectors in if people don't pay I would assume.

They'll obviously have to keep tight controls on bad debt, because they won't make any money if they lend to people who don't pay it back and they have to sell debts at a discount to debt collectors.

In some ways it's easier than ever to not have debt, since the advent of visa/mastercard debit cards. In the past adults pretty much had to have a credit card if you ever wanted to book flights, reserve hotels, hire cars, buy online, etc. Now you can use your debit card for all that.

I retired 3 years ago. Before that I worked part time.
I have 8 catalogues and if you add up the total of credit they have given me it is £20000.
Fortunately I have never not payed it off when I order something.
Nearly every year I get asked if I want my credit increased.

@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?

It's easy to get into, but also easy to avoid. Literally just don't spend money you don't have. If you have a credit card, think of it as a debit card with the added benefits of building credit and gaining points (if you have a card with a points-based system).

@BarbaraofSeville

A question for the people who say it's too easy to get into debt, would you be happy if it was harder to borrow money?

For example:

No overdrafts at all and all credit cards worked as charge cards in that the balance was paid off every month and if you couldn't do that, it was converted to a six month loan and stopped working for that time period, so you basically had to live on whatever income you had. Klarna and similar schemes banned. Forced cash based budgeting if you like.

All your bills are taken off your salary straight away, an amount put away for annual expenses and you have to make do on what you have left until the end of the month.

No such thing as a 'free' mobile phone on a contract. All phones have to be bought outright and you just have to buy what you can afford. Same for other 'non essential' household appliances (yes phone is essential, but a £1000+ iphone is not), also things like holidays and other discretionary spends like Christmas and takeaways.

Very restricted credit available very cheaply for household essentials like washing machines but you basically have to ask a bank manager in person for approval, who will go through your finances and spending to make sure you're being responsible with your money.

So no-one can get into debt and everyone has to live within their means, which are sufficient to cover essentials and some luxuries, but not everything that anyone could ever want, we're talking about the average majority, not those who genuinely don't have enough for the essentials or any luxuries, but not those who can have everything they want without compromise.

You could have a fancy phone or a holiday for example, but not both, if you wanted to go on holiday, you'd have to make do with a £150 smartphone not the latest £1k+ version.

So no-one would be able to get into crippling debt, so we'd all be happy with that?

That's how I live now anyway. If I cant afford it we go without. Apart from my student loan or mortgage I dont go into debt for anything. I buy a cheap car and use it til its dead. When my phone needs upgrading I buy a cheap phone and very cheap sim contract. When you live like this you do manage to save up a small amount. So when you do need to replace white goods you have money if you need it.

Far, far too easy. When were young there were no credit cards. If you needed to buy anything you could have “hire purchase” which involved getting a guarantor to sign the application form after visiting an office to acquire it. This tended to be for large items like furniture. Then there were catalogues which allowed weekly payments etc but the point is that you couldn’t easily indulge in impulse buying unless you had the cash to hand. Somehow a card doesn’t seem like real money until you get the demands for money or you see it taken out of a bank. Until lockdown we took cash out of the bank and paid for food and small items from a set amount. Boring I know but the psychology of seeing an emptying purse or wallet is a great determiner of value and need.

When I did my GCSEs 10 years ago compound interest was on the GCSE maths curriculum, so it is taught at school. Martin Lewis also produced a free money textbook a couple of years ago which is on his website - the information is out there and easy to find now we have the internet.

@bp300 you are right about the creation of money but you haven’t mentioned the impact of inflation on asset prices. Obviously house prices have outstripped inflation but £500 in 1950 is over £17,500 now so the compound effect is not insignificant.