What caught my eye this week.
While I’ve made the case for running a big interest-only mortgage in recent years, overall I still loathe debt.
The first thing I tell almost anyone who asks me about their finances? Get rid of the non-mortgage debt.
It’s always surprising to me how much debt some people have. Especially those earning a reasonable salary.
Sure, you can make a case for not paying off student loans, or even for financing a car versus buying new. (But better not to buy new!1)
Generally though, debt drags you down. It turns compound interest into your enemy. Debt is mentally dispiriting, too.
Celebrate good – and bad – times
Perhaps my perma-downer on the Big D is why an article celebrating being in debt at The Money Principle caught my attention.
Of course the author, Maria Nevada, urges you to ‘demolish’ debt ASAP.
But rather than bemoaning the state of your finances that made such emergency action necessary, Maria suggests you think positively about how this episode will enhance your life story:
Things started to happen once I pulled away from the misery debt brings and found reasons to celebrate it.
I felt empowered, not downtrodden.
I felt hope, not despair.
Paying off our debt became the meaning of my life, not its destroyer.
Do you wish to pay off your debt and live the life you want?
You can do it. But you must resist the pull of negativity and focus on the reasons to celebrate your debt. Learn to celebrate your debt, not in the new age ‘I love everything about me and my life’ way, but as a set of opportunities you may never get again.
Do read the full article – especially if you’re facing a debt challenge.
The only way out of debt is up
After 14 years writing Monevator I’m finally appreciating how big a role stories play in motivating most people about money – and everything else for that matter.
I came to financial independence via a compound interest calculator. This anonymous site was partly founded on the back of that.
But I’m unusual. Most people want to see a human face, and to hear a story. They want abstract concepts about money turned into a narrative, and an arc.
For an example, look no further than the great job my co-blogger has done on charting his path to early retirement and beyond.
I’ve a close friend who has long struggled to turn monthly budgeting and half-arsed saving into a financial plan.
That’s despite – or maybe because of – plenty of lectures from me over the years.
But recently I happened to tell her about how I met The Accumulator, and how different he was in those days.
TA was a high-spender, and in hock. Extremely different from today.
My friend was visibly intrigued. A couple of days later she emailed me about online investing platforms.
I’ve never found a way out of debt
Some readers will feel that ‘celebrating’ debt is at best a mental delusion, and at worst a cop-out.
I hear you. But then I’ve never been in debt, and I’ve always had savings – right back from when I took my first paper round as an 13-year old.
Yeah – go me!
But really, who is more likely to inspire somebody who is up against it right now?
A person who could save without ever really thinking about it? Or someone who strove and found ways to turn their finances around?
I think the answer is obvious.
So three cheers for wherever you start your journey to being good with money!
And have a great weekend everyone.
From Monevator
Survival of the fittest when it comes to ESG returns – Monevator
How much do I need to retire? – Monevator
From the archive-ator: Don’t waste money buying expensive gifts – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2
UK prices soar at fastest rate for almost 10 years… – BBC
…with used car prices up 27% on a year ago – ThisIsMoney
…and rents rising at quickest pace in 13 years – BBC
Higher interest rates could weigh on housing market, says Nationwide – Guardian
HMRC chief insists new data grab will bring taxpayer benefits [Search result] – FT
Banks will have to repay transfer scam victims under new law – Which
British Land to turn empty shopping centres into online delivery hubs – Guardian
Calculating ‘safe’ withdrawal rates for the years ahead [US but relevant] – Morningstar
Products and services
RCI bank launches ‘green’ 14-day notice account paying 0.55% – ThisIsMoney
Six ways banking apps can help you stay on top of bills and services – Which
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
Tired of being snooped on as you work from home? Try a ‘mouse jiggler’ – Amazon
Want to be a DIY Venture Capitalist? Sign-up via my link and we can both get £50 towards our budding empires – Seedrs
Homes for sale priced near the UK’s £270,000 average, in pictures – Guardian
Comment and opinion
Everyone’s a renter – A Teachable Moment
America is booming, but inflation is pissing off Americans – Ben Carlson
Cashflow is everything – Meaningful Money
Crypto in the classroom: Lucy Kellaway on the kids’ new craze [Search result] – FT
Three tips from a side-hustling couple who make $3m a year – CNBC
Do you have too much stuff but not enough space? – One Frugal Girl
Wrestling for money – Humble Dollar
The UK’s boom-less recovery – David Smith
The stock market is not the economy – Compound Advisors
Spending – Indeedably
Frugal versus cheap – The Frug
Deviation mini-special
Larry Swedroe: Tactical allocation has not beaten index investing – T.E.B.I.
It’s hard to argue for high active share funds – Morningstar
Factor investing deep dive [Video/podcast] – Alpha Architect
Naughty corner: Active antics
Portfolio turnover isn’t a sin – Albert Bridge Capital
Case study: buying and selling SThree – UK Dividend Stocks
The rise of ‘media-first’ professional investors – Neckar’s Insecurity Analysis
The case for UK equity income investment trusts – ThisIsMoney
Should you invest in a start-up? [Search result] – FT
Investing lessons from a 1906 classic – Novel Investor
Covid corner
Booster jabs to be added to England’s Covid pass for travel – Guardian
Austria to impose mandatory vaccinations from February – CNBC
‘Child of Delta’ spreads faster but is less symptomatic – CNBC and Independent
Kindle book bargains
Talking to My Daughter: A Brief History of Capitalism by Yanis Varoufakis – £0.99 on Kindle
Exponential: How Accelerating Technology Is Leaving Us Behind by Azeem Azhar – £0.99 on Kindle
Happy Sexy Millionaire: Unexpected Truths about Fulfillment, Love, and Success by Steven Bartlett – £0.99 on Kindle
Environmental factors
The planet has a human poop problem – Slate
Investing in UK energy storage – DIY Investor
Off our beat
No more side quests – Josh Brown
How to quit your job well and without regrets… – Fast Company
…or how to have staying power if you don’t want to quit – Guardian
Singapore’s tech-utopia is a surveillance state nightmare – Rest of World
Abandoned former USSR sites, in pictures – Guardian
And finally…
“Don’t look for the needle in the haystack. Just buy the haystack!”
– John C. Bogle, The Little Book of Common Sense Investing
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- At least that’s usually true, when a global pandemic hasn’t sent secondhand prices soaring. [↩]
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
What are your thoughts on 0% cards and balance transfers @TI? Just interested to know on a general level, not asking for advice.
At one point, about six/seven years ago, I somehow had £12k+ of consumer credit card debt lingering around and not quite sure how (the usual, overspending on stuff I didn’t need).
Since then, alongside saving and investment elsewhere, I have got this down somewhat considerably, overpaying the minimum and regular balance transfer to 0% cards. While consumer debt is bad, and I still have some (0%), but credit can be useful if used well of course – for example I purchased our solar panels on credit and now regularly balance transfer to 0% while paying off and receiving cheaper energy and tariff payments – although the minimum credit card payments have recently increased. Thinking about shifting away from investment payments to just clearing everything owed, if only as a mental thing, particularly with a house move and mortgage applications pending.
Thanks for the piece and have a nice weekend all.
JDW – I was in an IVA 2000-2005 paying off a large debt. I’ve been debt free since. I have had a flirt with using a 0% credit card but both times, decided against it. The “mental bandwidth” of carrying debt – which I didn’t need to do – seemed to cause me unexpected stress. For a few quid, it wasn’t worth it.
Sometime before coming across the prudent ways of Monevator, I managed to get myself into a whole world of debt. Mid 5 figures of short term credit facilities cards and loans, with some interest rates over 10%, so basically out of control. Up until 2008 I was using 0% cards and equity release to fund small property investment and building work, and it was going pretty well, so I thought. Then the GFC happened, my main property lost half of its value overnight, and the on-paper mortgage extension offer I was depending on was suddenly withdrawn. Rather than default on the construction bills I raised what I could on short term, in the hope that the property value would be restored enough to borrow on the low interest rate and repay the short-term loans. That didn’t happen in time. The banks and card companies didn’t want to negotiate their rates either which could have bought time or the ability to repay, and ultimately lead to an Individual Voluntary Arrangement (IVA) in my case. An IVA is a legal agreement where the creditors get repaid an amount that is deemed affordable and lasts for 6 years. Settlement was reached after a year or so for me when I was able (with help) to pay off a proportion of the debt early, although I wonder if this was better than letting it run the full 6 years. After six years from the start of the IVA the credit rating is reset, which opens up credit cards and mortgage deals again. The IVA didn’t force a sale of properties that were in negative equity or touch pensions. Its hard to put into words the effect of living with spiralling out of control debt, but it is possible to get through it and live again. The lesson of course is don’t over extend but if you find yourself in that situation for whatever reason, an IVA is worth considering and may be the least bad of the options.
@calculus this is one heck of an inspiring story and a cautionary tale wrapped in one!
Glad you made it through, gives hope to ppl stuck in the same situation. But very scary to see how quickly things can spiral out of control.
I have used mortgage + 0% CC to manage / increase investments. It seems to have worked over last 5-6 yrs…. but reading your comment, makes me think I need to put together a deleveraging plan while I am free to do so, rather than forced to.
Thanks for sharing!
There is a growing trend of people living in homes that they couldn’t afford but bought years ago and are now reaching retirement age with huge (IO) mortgages and not having any pension savings worth living off – what’s the solution?
Equity release or lifetime interest only mortgages. Or living all your life in debt.
The sad thing is that it all works out nicely for those involved. The home owner benefits from rampant house price inflation and cheap money. Banks get their fees and interest and the government doesn’t have to deal with wailing of “hard-pressed homeowners forced to face reality”
I always credit this site and MrMoneyMustache for literally changing my life. In 2014 I was in £23507.81 of debt. All on credit cards. I was 34, never budgeted, and living pay cheque to pay cheque. I stumbled across the websites one night whilst working a night shift desperately looking for help to get out of the hole I’d dug myself. I’m not the typical Monevator visitor (I don’t think), I’m shop floor, average income. But with the advice I found here and by using YNAB I got control of my spending and over the course of 2 years I paid off all my debt. Fast forward to today and with the help of lessons learned (and a company SIP I had ignored the previous 15 years), my savings are growing surprisingly quickly. I’m very fortunate to have found myself on a final salary pension which is still open, so that side of things is taken care of, but I have a large mortgage that I’d like to have paid off/offset within 15 years or so. I still use YNAB and still visit here every week. So, thank you! And keep up the great work!
Thanks for the thoughts all and especially for that cautionary tale. I currently have a few grand on a 0% card that I’ve been rolling for years because it seems silly not to but nothing like the old stoozing days.
I too used to have mid-five figures on a 0% card with money earning 6%+ or even more. Ah, using the Egg card as a conduit etc, those were the days. 🙂
The fact they made this so easy for so long shows how it works out for most however, and particularly nowadays it’s not worth getting started. I’m just letting my 0% balance run to stay dusty! 😉
Would probably ramp up again if the spread to cash ever got meaningful again.
Needless to say this isn’t something to do when putting the money into anything with any risk, as the salutary story above reinforces.
Like TI, I have always had some savings since childhood. So I don’t feel qualified to comment about how to deal with non-mortgage debt.
On the other hand, I found the Morning Star article on safewithdrawal rates very interesting. It suggests to me that if you can cover your essential expenses with a withdrawal rate of less than 2% and are prepared to reduce the non-essential expenses in market drawdowns, you might be able to spend more in the beginning and still see your money lasting for at least 40 years. I know all this is based on US data, but perhaps the UK SWRs won’t turn out to be much lower than that 🙂
Insightful read and good comments as ever. Thanks.
@Tom-Baker Dr Who (#8):
IMO it is worth considering signing up with Morning Star to get a PDF of the full (59 page) report.
You don’t need a physical “mouse jiggler”. There are plenty of apps that do the same, without requiring installation (thus you can have them on your work computer). They usually also have an “hidden jiggle” option that doesn’t actual move your cursor, just tells the computer the mouse is moving.
I see Andrew Bailey is quoted saying that risks to inflation are “two sided”.
@ Calculus and Carl – thank you for those stories. It’s inspiring to know you’ve been in a dark place and come out the other side.
Re: 0% credit cards – it’s just not worth it anymore. I’m running mine down because life is too short.
Love the mouse jiggler. Take that snoops.
Reminds me of an old Calvin & Hobbes cartoon:
Calvin drew eyes on two ping-pong ball halves – intending to deceive his teacher that he was paying attention in class and not secretly sleeping.
But then he worried his solution made him look: “too interested.”
In my mid 20’s I decided to give up my career of just over five years ( the just over proved to be important 30 years later) and move to the States and bum round, this wasn’t the first or last such major lifestyle change !
I looked back at five + years of bank statements and realised that not one of almost 200 sheets was missing a negative balance somewhere….credit card statements, the balance on those seemed to increasingly negative and so many more cards…
Despite the credit card debt, 9 months earlier, I bought a house with a work colleague, zero deposit, other costs on the credit card, on a whim.
It’s possible to do a house search, persuade a work colleague to buy a house, arrange a mortgage, solicitor and actually view and buy a house by lunchtime if you put your mind to it. The benefits of youth, why look at more than one house if the first was satisfactory ?
Having sold the house to a lady further down same road who lived in a flat, for a 25% uplift in 9 months, I moved back to the West Country, prior to the US adventure, and cleared all my debts.
Suddenly with a few quid in the bank, I never went into debt again ( apart from mortgages) when you can afford something, the desire to purchase is weighed against your need more carefully and most often is resisted.
My work colleague was not amused…..so I took him down the road and introduced him to our buyer and suggested that her flat was conveniently located, he would now have a deposit, it would be affordable and his girlfriend might stay over more often…. It worked out well, he married the girlfriend, she worked in a bank and got a great deal on mortgages.
Leaving my job after just over five years meant that pension contributions could not be reclaimed, which meant leaving over £2,000 locked away in the DB pension scheme. 29 years later I transferred out and got just under a hundred thousand into my SIPP. Bonus.
Never did get to the USA having met a lady on returning to the West Country and started to read The Times weekend edition money pages got into investing, via the privatisations of the 80’s.
The debt was clearly not a good idea, I was sufficiently numerate to realise this but when you are young you don’t care, the big lesson was that when you are in debt there is little incentive to change behaviour if you can (just) manage it. However when in credit after being in debt, you don’t go back.
@HariSeldon – great story. Glad it worked out.
And I totally agree once you’re out debt, getting sucked back in is something you avoid. I must have had 25 years of living beyond my means and rolling in debt. Fortunately, my wife is an incredible saver and showed me the error of my ways.
Now contemplating early retirement at 55, the options not having any debt gives you are fabulous.
In my mid-30s, I suddenly came to realise that being overdrawn all the time (and paying fees) and carrying a 5-figure debt on credit cards was not normal, a debt which was over half of my gross earnings, so I resolved to get rid of it. It’s funny how I thought I had been ok with the debt for many years but really I wasn’t – my family and friends did not know as I was ashamed of it, I felt very much alone. I would have loved to have been able to see this debt in a positive light.
Back then, there was no friendly help from the internet so I had to do it the old school way, strict budgeting using a cashbook to record every single penny I was spending, with any spare cash being thrown at the debt (highest interest first). I made liberal use of 0% credit card balance transfers.
I was still in debt when the financial crisis happened – with my job at risk and debts to pay, it wasn’t a nice period of my life.
To my relief, I kept my job and did pay off the debts but to this day, I don’t have a real budget as such because tracking spending like that brings back not-happy memories of those dark days of misery.
I’ve recently decided to make use of a 0% credit card, allowing me to spread the cost of some big purchases. However, this time, I’m in control.
I’ve always run debt on 0% cards and then flipped that debt to 0% and 0 fee cards. The returns are no way as good as years ago but the points, cashback and tiny offset savings do add up. This strategy works as long as you are responsible and know the implications. Also buying items on credit cards gives you some additional protections.
I also have a fully offset interest only offset mortgage which I could discharge but I’m keeping it for flexibility access to cheap funds.
0% cards have also helped smooth out the bumps when I’ve had cashflow issues whilst using up my pension carryover.
@TI You used to talk about start-ups that you’d invested in or thought about investing in quite a lot, but I don’t think we’ve heard much about them recently. How did it all go?
On personal debt http://www.moneysavingexpert.com has a lot to say, plus (generally) supportive forums.
Interesting article, but I doubt you did a paper round at age 11. The legal requirement is minimum age 13. You’ll be telling us next you went up chimneys. I’ll be wary of your anecdotes in future.
@Mal — Hmm, I think you’re right. My memory was the paper round started when I went to comprehensive school but my mother just confirmed I wanted to start then but couldn’t (an older neighbor and idol had been doing one for years 🙂 ) Apparently it was jobs for pocket money in the garden etc for a while. Neither of us remember an age check though and this was the 1980s in the provinces — a time when a burly 13 year old could still walk into the right newsagent and buy cigarettes etc.
Anyway I’ll change the age to be sure as it was written without a lot of deep historical research and as you say that’s the legal age so I could well have over egged it!