Impact Of Debt Deveraging

[thefruits]

I was reflecting on whether to cancel my subscription to creditexpert where I get a monthly dose of relief from the life I lived to the life I now live. I wonder how unusual my position is.. and whether if it might have some sort of bearing on any path to growth ahead...

In 2006 I was pretty much up to my eyeballs in debt but seemingly surviving and doing well. I had around 12 active credit cards (approx 100k limit with around 80k on them), a loan on a new car, a mortgage and a second mortgage on the property (60k for an extension). Oh and a gross income of approx 100k pa with my wife bringing in 20k pa. What came in went out but we never did without and seemed to be living life large. Not sure exactly what triggered the change but sometime in 2009 I think, one of the cc companies raised its rates alarmingly ( or cut my cc limit can't be sure).. and my wife and I suddenly had a omg moment. Anyway..we pledged and scrimped and cut back (amazing what culling most of the dd's can do). Each time we got rid of the card, we wrote to the institution requesting that they close it immediately, and looked on credit expert shortly after to see the magic word 'settled'. Many a conversation was had with the insti where they tried to get me to keep the card, even with a pitiful 500 gbp limit but we wanted to see the magic words.

4 years later .. actually 3.5 years as we've been debt free (excl mortgage - we have 75% LTV) for about 6 months.. and our wallets are lighter (just 1 CC which we pay off every month), no overdraft, no loans, no second mortgage and its blimmin great. We have a 999 score on the creditexpert rating which says we can handle credit. Yep we can and have actually worked our socks off to pay off the credit but now we simply don't want it anymore. We get regular mails offering us loads of credit but happily recycle them with a smile.

So I was wondering.... perhaps there are others out there like us who could spend, probably have in the past and made the banks rich, but have simply lost the appetite for credit. Hence its not a question of making credit more freely available. Its as though they are offering a solution to a problem that perhaps doesn't exist as it used to ?

any thoughts ?

[interestrateripoff]

You've certainly done well to remove the excess debt from your life.

I do find it staggering that people think it's normal to have £80k with credit cards alone! What where you getting charged per month for carrying over that debt? Did you consolidate with a single loan to pay them off or did you concentrate on one at a time?

However George is now expecting you to do your duty and take on more debt to make the economy grow!

[winkie]

I think you have passed the point of no return.

Edited August 13, 2013 by winkie

[The Knimbies who say No]

I was reflecting on whether to cancel my subscription to creditexpert where I get a monthly dose of relief from the life I lived to the life I now live. I wonder how unusual my position is.. and whether if it might have some sort of bearing on any path to growth ahead...

In 2006 I was pretty much up to my eyeballs in debt but seemingly surviving and doing well. I had around 12 active credit cards (approx 100k limit with around 80k on them), a loan on a new car, a mortgage and a second mortgage on the property (60k for an extension). Oh and a gross income of approx 100k pa with my wife bringing in 20k pa. What came in went out but we never did without and seemed to be living life large. Not sure exactly what triggered the change but sometime in 2009 I think, one of the cc companies raised its rates alarmingly ( or cut my cc limit can't be sure).. and my wife and I suddenly had a omg moment. Anyway..we pledged and scrimped and cut back (amazing what culling most of the dd's can do). Each time we got rid of the card, we wrote to the institution requesting that they close it immediately, and looked on credit expert shortly after to see the magic word 'settled'. Many a conversation was had with the insti where they tried to get me to keep the card, even with a pitiful 500 gbp limit but we wanted to see the magic words.

4 years later .. actually 3.5 years as we've been debt free (excl mortgage - we have 75% LTV) for about 6 months.. and our wallets are lighter (just 1 CC which we pay off every month), no overdraft, no loans, no second mortgage and its blimmin great. We have a 999 score on the creditexpert rating which says we can handle credit. Yep we can and have actually worked our socks off to pay off the credit but now we simply don't want it anymore. We get regular mails offering us loads of credit but happily recycle them with a smile.

So I was wondering.... perhaps there are others out there like us who could spend, probably have in the past and made the banks rich, but have simply lost the appetite for credit. Hence its not a question of making credit more freely available. Its as though they are offering a solution to a problem that perhaps doesn't exist as it used to ?

any thoughts ?

First- good on you for getting on top of your finances before they got on top of you. I guess you know all too well how it might have turned out if you didn't have the discipline and the earnings stream required to pay it off. Nice to read a credit card debt tale that doesn't end in an IVA etc.

On a wider point, there are plenty of credit worthy borrowers, including I guess most of the most credit worthy borrowers, like you, who do not wish to take any more finance. The BBA high street banking stats have shown this consistently:

I think that banks are able to prevent people repaying card debts more easily that personal loans because a) card debt being repaid may depend on a personal loan approval, which a bank can refuse to keep the higher interest payments from the debt being on a credit card instead, and a personal loan has a defined term, which means a fair amount has to be written just to keep balances stable and people are reticent to get rid of a card or can be tempted to keep on a low limit. Of course, once they are in the cycle of debt, they may never be able to get rid. I like to think that credit card debts will start to fall now personal loan balances have started to stabilise, but that's not quite a rational expectation- you'd think people would prioritise higher-interest debt. Maybe they just see the monthly loan payment as the same as their mortgage or whatever and take the flexibility to not repay on the card instead, albeit at greater cost. Time will tell.

If people are shunning 'big ticket' items like cars, or at least paying for them differently (I see lots of lease deals for new cars now) then that will also reduce applicants for personal loans.

Banks are desperate to push debt on people, but barring credit cards they have a hard time finding people who want it and can pay it back. Finding one of those traits in an individual is easy. Finding both traits in an individual is increasingly hard.

edit clarity.

Edited August 13, 2013 by cheeznbreed

[thefruits]

You've certainly done well to remove the excess debt from your life.

I do find it staggering that people think it's normal to have £80k with credit cards alone! What where you getting charged per month for carrying over that debt? Did you consolidate with a single loan to pay them off or did you concentrate on one at a time?

However George is now expecting you to do your duty and take on more debt to make the economy grow!

The relief is palpable I can tell you now we've removed the debt (excl the mortgage but hey ho we love the house).

In terms of how we did it... not logical I know but we started with the smaller cards... paid them off.. closed the accounts... cut up the cards (became a nice ceremony)... and moved on to bigger ones. I realise this is **** about face as we should have focused on % rates but they were all around 15-20% and we were on our own personal mission....

Oh and I should have said.... I'm a Chartered accountant.. hence I should know better than to have gotten into the situation in the first place but more worrying was that if we didn't get out 5hit in order quickly and did end up bankrupt then my professional reputation would have been up the swanny. Funnily enough, with friends our mission became a talking point as we weren't ashamed to share why we were scrimping etc. We even heard from another couple who were friends who were taken to do the same as the husband worked for a car finance company and they are especially harsh on their own staff getting into such financial difficulties. We went from being the types to buy waitrose burgers and verve cliquot to share at bbq's to aldi burgers and tescos BOGOF wine. Every little helps

[The Knimbies who say No]

The relief is palpable I can tell you now we've removed the debt (excl the mortgage but hey ho we love the house).

In terms of how we did it... not logical I know but we started with the smaller cards... paid them off.. closed the accounts... cut up the cards (became a nice ceremony)... and moved on to bigger ones. I realise this is **** about face as we should have focused on % rates but they were all around 15-20% and we were on our own personal mission....

Oh and I should have said.... I'm a Chartered accountant.. hence I should know better than to have gotten into the situation in the first place but more worrying was that if we didn't get out 5hit in order quickly and did end up bankrupt then my professional reputation would have been up the swanny. Funnily enough, with friends our mission became a talking point as we weren't ashamed to share why we were scrimping etc. We even heard from another couple who were friends who were taken to do the same as the husband worked for a car finance company and they are especially harsh on their own staff getting into such financial difficulties. We went from being the types to buy waitrose burgers and verve cliquot to share at bbq's to aldi burgers and tescos BOGOF wine. Every little helps

Brilliant story. I'm sure you'll be back on the champers before too long. It'll taste even better now.

[Fully Detached]

So I was wondering.... perhaps there are others out there like us who could spend, probably have in the past and made the banks rich, but have simply lost the appetite for credit. Hence its not a question of making credit more freely available. Its as though they are offering a solution to a problem that perhaps doesn't exist as it used to ?

any thoughts ?

Very similar story here - I didn't reach your level of indebtedness even on a % of salary basis, but like you, once I'd opened my eyes to how serious my predicament was, every penny that I earned went into paying it down. Having less debt I did it in a shorter time scale than you, and have been debt free for about 4 years, with just one CC that gets paid every month. And like you I've also lost the appetite for credit - I don't even want a mortgage. It's debt revulsion, which only occurs when you've had that "oh sh1t" moment. I imagine quite a few people have had something similar over the past few years.

Well done btw - I know exactly what a sense of achievement it is to be free of the millstone

[interestrateripoff]

The relief is palpable I can tell you now we've removed the debt (excl the mortgage but hey ho we love the house).

In terms of how we did it... not logical I know but we started with the smaller cards... paid them off.. closed the accounts... cut up the cards (became a nice ceremony)... and moved on to bigger ones. I realise this is **** about face as we should have focused on % rates but they were all around 15-20% and we were on our own personal mission....

Oh and I should have said.... I'm a Chartered accountant.. hence I should know better than to have gotten into the situation in the first place but more worrying was that if we didn't get out 5hit in order quickly and did end up bankrupt then my professional reputation would have been up the swanny. Funnily enough, with friends our mission became a talking point as we weren't ashamed to share why we were scrimping etc. We even heard from another couple who were friends who were taken to do the same as the husband worked for a car finance company and they are especially harsh on their own staff getting into such financial difficulties. We went from being the types to buy waitrose burgers and verve cliquot to share at bbq's to aldi burgers and tescos BOGOF wine. Every little helps

I wouldn't say it wasn't logical. Removing the cards with the debts first I think can give a big psychological boost as you can quickly start "cutting up the cards" that you've paid off, a nice bit of positive reinforcement.

[thefruits]

Very similar story here - I didn't reach your level of indebtedness even on a % of salary basis, but like you, once I'd opened my eyes to how serious my predicament was, every penny that I earned went into paying it down. Having less debt I did it in a shorter time scale than you, and have been debt free for about 4 years, with just one CC that gets paid every month. And like you I've also lost the appetite for credit - I don't even want a mortgage. It's debt revulsion, which only occurs when you've had that "oh sh1t" moment. I imagine quite a few people have had something similar over the past few years.

Well done btw - I know exactly what a sense of achievement it is to be free of the millstone

Well done you as well. I actually became physically sick during the OMG moment when I realised how close we were potentially to becoming royally screwed for the rest of our lives. The enormity was of what we needed to do was really scary. Sure i earn a good salary but I also appreciate that this can never be taken for granted even though I've been employed since leaving uni.

As for the mortgage. I realise it will sound trite and I don't mean for it to but the old saying location location location is probably the only truism that i suspect will never change over time. Our house is in Wokingham, about 5 mins walk from the station, kids are about 10 mins walk from their schools, we're about 10 mins walk from the town centre. The house itself is nice but the location is unbeatable for us so we'd rather scrimp on everything we can to ensure we can remain where we are. Sure there are bigger houses, with more things, more space, more gardens etc further out of town but the simple attration for us is that we can walk everywhere we need to now, and in 30 years time (I'm early 40's) when what we want is doctors (about 7 mins walk), local pub (about 5 mins walk), and easy access to public transport, then I think we'll be as happy with the location as we are now. Fingers crossed Wokingham doesn't suddenly turn into Slough.

[Greg Bowman]

I

So I was wondering.... perhaps there are others out there like us who could spend, probably have in the past and made the banks rich, but have simply lost the appetite for credit. Hence its not a question of making credit more freely available. Its as though they are offering a solution to a problem that perhaps doesn't exist as it used to ?

any thoughts ?

+100 First of all Well done. We were similar although business took a poor turn in 2007 and I was bang in the middle of paying top end school fees. No excuse my choice.

£600k in debt with illiquid asserts of Business premises, business and new house in Dec 2009 (rented for two years and brought then actually not bad timing 60% LTV)

Took a look in the mirror and thought this is nonsense. Plan exactly the same just hit that debt in fairly random fashion no new cars, no loans old sofas (even writing this seems nonsense to be honest what was our lifestyle before?)

Now £20k left on 0% cards (still not bad way to borrow if you manage) Mortgage £380k about 45% LTV. Target September 2014 Sub 300k mortgage that's it. One tip make your target your password recent one Only30014 (secure as well!) Took on some work I wouldn't rather do Consultancy as well as running my own business but quite easy to rationalise with a clear goal.

I am not going back to debt and there are probably hundreds of thousands like us - we dodged the bullet with this governments policies at the cost of savers.

I reckon that is tens of billions that won't ever go back into the economy

Well done again

[thefruits]

+100 First of all Well done. We were similar although business took a poor turn in 2007 and I was bang in the middle of paying top end school fees. No excuse my choice.

£600k in debt with illiquid asserts of Business premises, business and new house in Dec 2009 (rented for two years and brought then actually not bad timing 60% LTV)

Took a look in the mirror and thought this is nonsense. Plan exactly the same just hit that debt in fairly random fashion no new cars, no loans old sofas (even writing this seems nonsense to be honest what was our lifestyle before?)

Now £20k left on 0% cards (still not bad way to borrow if you manage) Mortgage £380k about 45% LTV. Target September 2014 Sub 300k mortgage that's it. One tip make your target your password recent one Only30014 (secure as well!) Took on some work I wouldn't rather do Consultancy as well as running my own business but quite easy to rationalise with a clear goal.

I am not going back to debt and there are probably hundreds of thousands like us - we dodged the bullet with this governments policies at the cost of savers.

I reckon that is tens of billions that won't ever go back into the economy

Well done again

Again... I don't apologise for saying it. Well done to you too.

Funny responses though. I was fully expecting the HPC crew to crow about what an idiot I was and it was the likes of me that got the country into the mess it is now. I was expecting to have to justify the lifestyle I led (which at the time before the oMG moment seemed I guess normal) and in a way, I guess I can.. but I won't as there is no point.

With regard to house prices.. I do see a link. In 2006, i would have been thinking of how to get up the ladder further, perhaps in x years time (of course assuming the cc debt would roll on forever or disappear or something random ).... and I would have been looking at the next few rungs up. Yet now, even though we're debt free (apart from the mortgage) and we could if we wanted too get a house which was bigger, shinier, and probably around 800-900k, we don't want to take on any more debt. I guess many pensioners would be looking to downsize and its the likes of me who they would wish to sell their 1m mansions to. Thing is, if the likes of me and others on here aren't in the market to buy the properties, who exactly is going to buy them ? I guess many will approach equity release outfits but I'm sure I heard recently that applications outnumbered viable offers by more than 10:1.. so who is actually going to buy these properties ?

[koala_bear]

I reckon that is tens of billions that won't ever go back into the economy

Getting the BoE and HMT to accept that as the reality will be tricky though as they still hope it will.

Another generation (probably in primary school at the moment) will be silly like that again though in15-20 years time.

[pathfinder]

Took on a mortgage 2005, 2 bed flat sitting at 27% LTV. No car, no tv, no kids.

The interesting bit is when you figure out you do not want to work 5 days a week anymore. In a few years I can choose. My refusal to upsize £80k+ is viewed in abject horror by the grey haired detatched house brigade.

[winkie]

....I was told I was stark raving mad to sell a London property.....borrow heavily against it and rent it out, buy another with the new found debt, would never to have to work again was told......let me think, was so glad I got shot of it, best thing I ever did.........it took years to pay it off, why would anyone in their right mind want to go through all that again.

[interestrateripoff]

Again... I don't apologise for saying it. Well done to you too.

Funny responses though. I was fully expecting the HPC crew to crow about what an idiot I was and it was the likes of me that got the country into the mess it is now. I was expecting to have to justify the lifestyle I led (which at the time before the oMG moment seemed I guess normal) and in a way, I guess I can.. but I won't as there is no point.

I still think you where a complete idiot that got caught up in the euphoria of it all, however accusing you of spunking money away on holidays etc... you couldn't afford doesn't stick as clearly you could afford it as you've got your finances back in order by not consuming like you once did. You have paid for previous over consumption by under consuming now and changing your lifestyle. But you could afford it.

You realised the euphoria couldn't last and took action, that in itself is a rare trait as people caught up in such a euphoria believe this time it's different and wage increases etc... will eventually clear their debts.

Debt isn't a problem if you can keep servicing it and you realise you have a problem before the ability to service and pay it off is lost. Not many people have the ability to see the reality and take appropriate action before bankruptcy happens.

Consumption is a trade off, if you over consumer with continual debt at some point you reach a crossroads where you have to take action and cut consumption and pay off the debt or you just carry on hoping that something will happen like a new job with a higher wage or you keep going until the bailiffs turn up.

[okaycuckoo]

Good thread.

Wondering why the OP joined HPC in 2006, same year as his epiphany.

Was it fear of CC interest rates compounding, or fear of negative equity?

Or did he just reject ...The Fear!

p.s. Back in the day, what was that phrase for rolling credit cards over onto new intro deals? Bare-backing, or summat. Loads of jizz about it on MSE.

[Sancho Panza]

any thoughts ?

This is why we're in a deflation.We are reaching/have reached a stage,where people are no longer willing to take on enough debt to sustain the Ponzi.

Good on you.

[19 year mortgage 8itch]

Pussies

FTB - 1 yr into 25yr mortgage owe £95K, C.M.V. - £120K(?)

£9.5K for a car

£5.5K student loan left

only about 6wks take home pay in savings but slowly rebuilding

However don't use short term high interest flexible borrowing - ie credt cards, store cards or HP if poss. Also comfortable juggling other forms of fixed low interest credit to limit exposure to interest whilst paying it off asap and no debt taken on without considering the downside.

If you can't beat them, get a bigger stick join them!

[longtomsilver]

+100 First of all Well done. We were similar although business took a poor turn in 2007 and I was bang in the middle of paying top end school fees. No excuse my choice.

£600k in debt with illiquid asserts of Business premises, business and new house in Dec 2009 (rented for two years and brought then actually not bad timing 60% LTV)

Took a look in the mirror and thought this is nonsense. Plan exactly the same just hit that debt in fairly random fashion no new cars, no loans old sofas (even writing this seems nonsense to be honest what was our lifestyle before?)

Now £20k left on 0% cards (still not bad way to borrow if you manage) Mortgage £380k about 45% LTV. Target September 2014 Sub 300k mortgage that's it. One tip make your target your password recent one Only30014 (secure as well!) Took on some work I wouldn't rather do Consultancy as well as running my own business but quite easy to rationalise with a clear goal.

I am not going back to debt and there are probably hundreds of thousands like us - we dodged the bullet with this governments policies at the cost of savers.

I reckon that is tens of billions that won't ever go back into the economy

Well done again

fail

I could only dream of having an £80k credit card debt (and defaulting).

My eueka moment was when I had a maxed out credit card of £6k and a loan of £9k outstanding (originally £12k) not huge by any strecth of the imagination but I am lazy (not my fault it's heredity you see) and used to look forward to voluntary spells of unemployment in the summer when I had accrued maximum contributions based JSA. Going through the hassle of signing on just to make the loan and interest payments with nothing else left really grated. Paid this off through hard graft and luck (gambling) and celebrated with another summer off.

Met my wife in 2007 which was roughly when I became debt free and now working I had withdrawal symptons from not paying off debt (straight up) saw that my wife had a student loan of £10k and started tackling this (she was my girlfriend at that point).

I have a loan for £7k outstanding on a car, hire purchase that I will be voluntary terminating in February (apr ~4%) and a loan for £3, 600 on a honda crf250l that I tookout in Maythis year (0%, £3, 300 outstanding which is about its current worth). I have a greater amount cash than the combined sum in my current account.

L

Like the OP I got a letter from Santander last week telling me they were increasing the standard rate from 16.9% to 23.9% £3k limit with nothing owing and never paid interest but the offence took hold and I called last night to cancel, what a faff with the staff member in question trying desperately hard for me to hold on to the card.

My other credit card with FD still has the orignal £6k limit which I only keep as it entitles me to free banking.

Mortgage outstanding is now 65% LTV and 0.7x wifes salary, originally 75% and 1.2x wifes salary. As soon as I have workedout how to do my wifes tax return for last year we will be taking it under 59%. She is so grateful that I stopped her buying the house further up the road for £100k more which was still well short of what the banks were willing to lend. She works in the same league as the OP CIM, CIMA and it is no secret that her equally well paid colleagues bow to her better judgement and wit owing between £250k and £600k themselves, the latter being a rather nice barn conversion.

Edited August 13, 2013 by longtomsilver

[janch]

Interesting the change of mindset some people are undergoing. I've been debt-free for a while now and have downsized my life so as to no longer be a debt slave and I stopped using any credit cards too.

Wokingham is one of the areas I've been keeping an eye on as I grew up in the area and sadly cannot now afford to live there even if I wanted to because of house prices. However there always seems to be a lot more larger 4 bed or more houses for sale than in most other places and I wonder if there are a lot of people looking to downsize. In an area such as Wokingham there must be a shortage of smaller 1 and 2 bed properties for singles or couples. I wonder what the glut in larger properties will do to prices and also whether this is happening elsewhere.

Where I am now has much more of a mixture of smaller 1 and 2 bed properties (flats and houses) plus larger 3/4 bed houses for families.

[winkie]

Interesting the change of mindset some people are undergoing. I've been debt-free for a while now and have downsized my life so as to no longer be a debt slave and I stopped using any credit cards too.

Wokingham is one of the areas I've been keeping an eye on as I grew up in the area and sadly cannot now afford to live there even if I wanted to because of house prices. However there always seems to be a lot more larger 4 bed or more houses for sale than in most other places and I wonder if there are a lot of people looking to downsize. In an area such as Wokingham there must be a shortage of smaller 1 and 2 bed properties for singles or couples. I wonder what the glut in larger properties will do to prices and also whether this is happening elsewhere.

Where I am now has much more of a mixture of smaller 1 and 2 bed properties (flats and houses) plus larger 3/4 bed houses for families.

There are many that can't afford larger families so don't require so much inside room...often spare bedrooms are used as spare storage rooms.......outside space is becoming more the coveted outside extra room.

[disenfranchised]

More and more people are cottoning on, that its 'have now, pay more later' and that life is better in the black. I earn more than my brother, but over the past decade, its always been me having his hand me downs. Now he is paying me back a substantial wedge for clearing his high interest debts. I can't understand why he 'needed' things like a new iPad, or a better TV when the old one works. He is very moral and trustworthy, so I don't even have to check he's paid each installment, as he always has. Hopefully he will get more restrained, it looks that way at the moment.

Over 3.5 years I have got myself from £7k in the red to a position of no credit and enough to live on for a couple of years tucked away. If you earn a good wage, it really isn't that hard to just not buy crap. I still spend money on the odd decent bottle of wine or weekend away, just not to excess - paying for it all as you go makes you appreciate it far more.