Thursday, 7 July 2011

credit abundance and its' perils

One of the main thrusts of my money-saving extreme model (M.S.ext.), is to 'only buy something if you can afford it'.
I guess most people may have outstanding loans or payments on the bigger purchases in life, i.e. a mortgage and the costs of financing a vehicle?

This I think is inevitable if you want to be a homeowner or own a nice vehicle.

For the rest of you/yourpartner/families spending, does it have to be on credit? and what is its' true cost?

For my own part, I rarely pay credit interest, unless it is very small amounts and it suits my cash flow position.

Hypothetically speaking, it could be posible to generate £40k instantly via credit cards.However, you may be charged around 17% a.p.r. for this credit.
This would take 35 years and 4 months to repay, with total interest and payments of £51784 over the period of repayment.(Calculated via MSE, on an MBNA card)

However, the M.S.ext approach would be:

Do't buy it if you can't afford it;
Why do you need to purchase unecessary consumer goods;
Can you do without and find a free/cheaper alternative;
Is it within your budgetary lifestyle, budget boundaries?.

For those lucky enough to get through the process of loaning £40k on a mortgage over a 35 year period, you would pay £154 per month on capital and interest,  have repaid the capital and got an asset (property) of £112k at the end of the mortgage repayment period, assuming 3% growth p.a.

I rest my case, credit for credits sake is a mill stone around generation X and Y's neck. we have to loosen the grip and break free from these financial constraints and liabilities..

It is in your hands, take action.

Thanks for reading.

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