Growing up, I’ve always had it ingrained in me that debt is something to avoid; even to fear. Sure, there are certain things you bargain for like a mortgage or a student loan. But there is definitely a bit of a stigma when it comes to having to borrow money beyond this.
Yet that presents a bit of a conundrum in itself, given that families have it pretty tough at the moment, and our generation is seeing standards of living being squeezed. Let’s face it, for our parents and grandparents, getting on the housing ladder wasn’t generally much of an issue, and a debt-free life was often pretty standard. Today, the average household has debt of nearly £12,000 – and that excludes mortgages.
Credit cards and unsecured debt
Credit cards have become a popular method for us to disguise the process of going into debt. After all, aside from being convenient (there isn’t the physical need to apply for a loan each time you’re short of money on a given day), there is also the feeling that all the Jones’s are using one, so there isn’t any shame in it.
The problem with this is that, if you don’t clear your balance at the end of each month, it becomes a very expensive way of funding your life. There are ways of avoiding this like balance transfers where interest is temporarily waived, but even still, Brits end up paying in excess of £1billion in unnecessary interest on repayments each year.
Then again, around one in four families currently have an unsecured loan of some variety too, with an average outstanding value of around £2,000. So are Britons getting into a debt spiral?
It would be easy to draw such conclusions. Yet it ignores an important truth. Unsecured loans can often be a force for good, especially at the moment with interest rates being incredibly low, and some providers offering APRs at less than 6 per cent to those with good credit scores. These types of loans can also serve to really enhance lives, and even add value in the long run.
A good example is home improvements, which is one of the more popular and constructive loan purposes. The value added to the home often exceeds the debt incurred, which makes it a worthwhile investment. Car finance can also make sense, given that most people don’t have the money lying around to cover such costs with savings, but still need a car. Another clever option is debt consolidation, whereby those with high credit card debt clear their balance with a low-cost loan. It’s a simple trick which requires almost no effort, and means that your debt immediately becomes cheaper.
Avoiding where possible
Of course, the ideal situation is to avoid debt, and manage the family finances as astutely as possible. In daily life, there are so many examples of cunning saving opportunities – be that hundreds of pounds from switching energy supplier to simply cutting out the daily Costa coffee. All the little bits add up, and, coupled with a determined mentality to save, can put you and your family well on course to financial freedom.
But, the point for most hard-working families is this…. Raising a family is hugely expensive. In fact, the cost of raising a single child until the age of 21 is estimated to be in the region of £230,000! So if times do get difficult, a sensible loan, with a sensible repayment plan, need not be something to fear.
*This is a collaborative post*