At university I took out the maximum student loan and put the money in a post office savings account. I made about 1% profit between the interest charged by the student loan company and the rate paid by the post office. I never used the money as a student, although it came in handy a few years later when I needed to put down a deposit for a house. This hardly counts as debt, although 10 years later I’m still paying off the student loan.
Buying a House.
Buying a house really strained my personal finances because I really needed to stretch myself to buy a house. I bought a house for £185,000 of which I needed to put down a deposit of £45,000. This included £7,000 of my own money (including student loan I had saved) and a £38,000 loan from my parents. Furthermore the interest payments on my mortgage were a bit higher than the cost of renting. The mortgage was for £140,000, over 6 times my annual income. I put all my savings into buying a house, but then found I needed to buy quite a few goods to actually go into the house. This caused by credit card debt to increase from £0, to £3,000 in a short space of time. For the past 4 years, I have successfully moved this £3-4,000 credit card debt from one 0% credit card company to another. Often I would have to pay a 2% balance transfer. But, effectively it is a very cheap way of borrowing money. The trick to maintaining all this credit card debt at 0% is to protect your credit rating and not to get greedy. e.g. Don’t borrow on a credit card just to put it in a bank. The 1-2% interest profit is not worth it. Another tip is to not cancel credit cards. Often old credit cards are willing to take back the debt at 0%.
The mortgage interest payments were taking nearly 50% of my disposable income, so I changed the mortgage from a 32 year mortgage to 47 years. This slightly reduce the monthly repayments. I am not worried about paying a mortgage for longer (I know it works out as more expensive in the long run) I feel that the mortgage payments will get relatively easier as inflation erodes their real value.
Boosting Income.
Teaching Economics at a private tutorial college only brings in £20,000 a year, which is not really a great income; on this income it seems hard to ever pay off the mountain of debt. We have received very small pay increases below inflation, so I decided to look for alternative income sources to supplement this income. This has been through building commercial websites such as this mortgage site and also a site on Economics. The difficulty was that to boost income I needed to sacrifice time to build up the sites. Therefore, I actually made the decision to work less hours as a teacher, leaving more hours for generating a second income. Initially this led to a lower income because in the beginning, you have to work hard without much return. In this period, I added a little more debt to the credit cards. However, I saw it as an investment and I now get a reasonable supplementary income and next year I hope to work even less hours teaching to spend more time on the websites. In the long run, I hope this second income source will grow and enable me to make extra mortgage payments and clear all the credit card debt.
My strategy to reducing debt was not so much to reduce spending but to look for a better income. Nevertheless, I try to avoid unnecessary spending.
7 Tips to Avoid unnecessary spending
10 effective ways to reduce debt
