
Household debt is BLOWIN’ UP – how to avoid getting burnt
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Iona Bain
Iona is the founder and editor of the Young Money. She is now the UK's go-to voice on young personal finance.
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This Post Has 2 Comments
ermine
11 Mar 2017> having debt for a specific reason, such as paying off a genuinely justifiable expense like a car or home
You have this wrong IMO. A car is a wasting asset – it depreciates over time. A new car depreciates by at least a third as soon as you take ownership. Never borrow money for that sort of thing. if you are rich enough to pay over the odds for a new car then knock yourself out, but don’t borrow for that.
Cars are much more reliable now than they used to be, get a banger you can afford if you can’t afford to pay up front. A nice car is a want, because decent alternatives are available.
A home isn’t a wasting asset, and it is one that pays you an income – the rent you don’t need to pay. Under some circumstances (fewer at 5-6x income multiples) it is reasonable to borrow money to purchase that sort of thing. In general, only borrow money to pay for productive assets – if it enables you to earn more money than it costs (education other than sports science and media studies, tools of your trade, capital plant) then borrowing can be okay. For all else pay cash or do without.
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