Weighted Average Cost Of Capital

[maxdiver]

Hello,

I did a 1 day econimics course a few weeks back for work.

One important concept that they introduced as WACC - Weighted Average Cost of Capital.

My only borrowings are a stutdnet loan, mortage and credit cards (paid off each month)

Totally debt is about £25k and WACC is around 2.2%. With the marginal rate being 2.59% (off-set mortgage). cost p/a is £520.

All my investments are outperforming this WACC.

Reading that article about the poor middle-class made me really think about this.

How many people are living affluent lifestyles and paying through the nose for it?

Not just from what they spend money on - but the money the spend on servicing the debt.

I have friends who are heavily into their Credit Cards - being charged maybe 15% APR. They are happy doing this - but they are idiots. On a £10k debt that is £1500 p/a 3 times as much as what I'm paying.

One friend borrowed £25k on cc's a few months back to buy shares which he thinks is a great long term investment - (he's still in the red on them but loves the 6% yield he's getting on his oil shares )

I'm sure there are millions of Britons who are sitting in a house with £100k of "equity" and who have a couple of credit cards maxed out.

Over time - those who are borrowing at high WACCs will have to work harder to pay back what they borrowed.

For those of us who are more diligent - we can save thousands of pounds over our lifetime.

(£1000 per year compounded at 15% for 40 years would make a nice pension pot no?)

If debt is the slavery of the free - the best option is to reduce your borrowing rate and then attack the debt.

Am I alone in viewing the world in this way? Among my friends (intelligent, "educated" people; very few get it

Thank god I have you guys!

[babesagainstmachines]

Rate tarts, most likely - probably paying 0%.

[maxdiver]

Rate tarts, most likely - probably paying 0%.

Well - that's what I thought:

I at one point had 30k on credit cards at 0%+3% set-up fee paying off my mortgage at 5.25%.

BUT - talking to them, most are either not on 0% or they were and were kicked off.

When they express remorse about their spending I feel it's the sort of remorse you get when you have a hangover and promise never to touch a drop again - and then go ahead and ignore that resolution at the first chance to yield to temptation.

Maybe it's "because you're worth it" - but they will have to pay for it - both today and tomorrow.