Is "Debt Free" all it's cracked up to be?

UsernameAlreadyExists

ChopinonaBudget wrote: »

Or you just spend the £5000.
Job done.
No debt, no savings.

I am spending it. On a bigger house.

All I am asking is being "debt free" the right way? I've strived to be debt free all my life. Now that I am, I've found that the erosion of savings is every bit as sickening as paying out interest in the first place. I honestly think I'd rather have the debt and nicer things than be in credit and losing money for nothing ... all the while I am still working that is.

LannieDuck

UsernameAlreadyExists wrote: »

I am spending it. On a bigger house.

All I am asking is being "debt free" the right way? I've strived to be debt free all my life. Now that I am, I've found that the erosion of savings is every bit as sickening as paying out interest in the first place. I honestly think I'd rather have the debt and nicer things than be in credit and losing money for nothing ... all the while I am still working that is.

I think what people on here are having trouble with is that you normally lose an absolute % on debt due to interest charges. What you're talking about is a small loss of relative % in the value of your money. That's not preferable to a larger absolute % loss.

However, debt for a purpose can be a good thing. I know a lot of successful business people have made money by taking out credit in order to invest in business etc. During the property boom, buy-to-lets were a good idea, even tho they required credit. The key thing is that the income from the credit needs to be greater than the interest rate you're paying on the credit.

With a mortgage, you have the hope that equity will increase. Plus, owning a solid asset to live in may be worth the interest payments in and of itself. Paying into the mortgage for your house is very different from buying e.g. a car you can't afford on hire purchase 'just so you don't have spare money lying around'.

Derivative

I don't really understand the problem here.

Buying assets is obviously a good idea. You're not really 'spending' money in that sense - just shuffling it into different forms.

Spending your money simply because you're afraid of 'inflation' seems silly.

My 10 grand is worth 9500 next year if not invested, sure.
But had I spent it down the bookies, I'd have nothing.

Your savings being worth 'nothing' in a 'market crash' - which reasonably would mean they're worth 30-40% less than a few years prior - seems infinitely preferable to the other option, which is having absolutely nothing?

foxgloves

Interesting thread. I am in a similar position to the original poster, as we have paid off all our debts which totalled around 30k at their peak. We were always able to service the repayments so never saw the debts as a 'problem', but never having any spare money for savings meant that any emergencies we did have - huge car bill, new washing machine, household emergency, etc, had to be financed via credit or extending overdraft or loan. All debts now paid off and the money we would have spent on paying debts has gone into an emergency fund & some savings. It is the first time in our lives that we are able to pay outright when trouble arises, rather than borrowing. We are earning no more than 1.5% on our savings, & I understand enough of the current economic situation to know that by factoring in rises in fuel, food, etc, that what we have saved now will be worth less in practical terms in a few years time. However, we both feel more financially secure now than we have ever done. In fact, due to a redundancy, we have dropped to one income. If this had happened while we had all the debt, we would not have managed & would doubtless be on a DMP by now. I can remember back in the 1980s when I had a savings account which paid 10%. I had £1000 in there, so earned £100 every year on a sum I never added to! Can hardly believe it compared to today's rates, but at that time, mortgage interest rates actually reached 15 or 16%, so it was a different type of economic problem. I've had the debt, I now have the emergency fund & savings. I would never opt to go back to the debt. I consider myself fortunate to have been able to get into a much more secure financial situation. One thing we can be sure of is that if savings interest rates DID increase to a decent level, we would pay for it elsewhere, probably in mortgage interest rates. Sorry this is a long post. Hope it makes sense.

Barbeduk

OP, your thinking is flawed and it's a bit shameless to be starting this thread on the debt free wannabe board.

How hard can it be to find a better interest rate? All you need to do is go to the savings and investment board! How about a Santander 123 account, pays 3% on savings between £3k and £19999. You just have to put £500 in a month and have a few dds running from it.

Do your homework and move your cash.

edit: this thread is a p*** take right? There are countless recommendations on the main site and forums about investing money. Can OP really have missed them all? And seem so utterly clueless about investments despite the fact that he has repaid his mortgage?

FatVonD

UsernameAlreadyExists wrote: »

I am going back into debt because I am moving house. I plan to downsize in the future and release the equity then to survive on (along with my pensions) in my retirement. I'll be living in nicer surroundings in a better area for the next 20+ years.

I don't like being debt free right now.

Surely then your £5,000 (and then some) will be eaten up by estate agent's fees, legal fees and stamp duty?

Could you raise enough from your offset mortgage to use as a buy to let deposit on a small flat? Then you'd never have to sell your house to fund your retirement as you could live off the rental income from your buy to let property. (And you'd not have to pay estate agent's fees or, depending on the purchase price, stamp duty.)

frosty

You have peace of mind......can you put a price on that?
A lot of people can't sleep at night worrying about debts....can't afford food ect.you are very lucky.

UsernameAlreadyExists

FatVonD wrote:

Could you raise enough from ....

Thanks but, I wasn't actually asking for investment advice, I was looking more for other people's opinions/experiences with being debt free. I can't be the only person that has crossed the line, and discovered that the grass isn't that much greener on the other side.

Also I've read many a horror story on here with LL'ing.

frosty wrote: »

You have peace of mind......

No! No I don't. This is exactly my point and purpose of this thread.

Cornucopia

I can kind of understand the OP's point, but it is fundamentally wrong-headed, and also (it happens a lot) misunderstanding the difference between asset-related debt that is within one's means and under control, and other debts that are "a problem".

Being debt-free and being (seriously) in debt are two completely different lifestyles. We happen to be in a place in the economic mire where positive interest rates are poor. Too bad, really. 2% is always going to be better than 0.5% - you are in a good position if you have the capital to be able to suffer the problem in the first place.

What being debt-free gives you is this:-

1. Freedom and flexibility - spend/save more of your money they way you want.

2. More money to spend - you are not ploughing a proportion of your income through spending routes that "cost" c. 30% to operate.

3. Long-term security and choice - you can begin to accumulate funds or assets, where those in debt may have little or none. You are therefore more likely to be able to maintain your lifestyle through the bad times.

bt1

I don't get it - how do you lose money by having savings?! Someone please explain.... Simply!