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Max it out or wait and save?

Savings and Debt

Over the past 50 years or so there has been a shift in how we work with money in the Western world. We no longer wait until we have saved enough money

buy things, instead we have what we want, more or less when we want it. This shift has crept up on us over the past couple of generations with grandparents wondering how they can save for a new item, and their grandchildren wondering why they don’t just max out their credit card to get it.

Students, except Scotland, leave university with their first debt to be paid off through their wages reaching a financial threshold, some, will never get there despite their university education. What is that teaching our young people?

It teaches that debt is ok.

Some debt is ok. A mortgage to buy a property is now classed as normal and is probably the biggest debt that most people will have during their lifetime. Most of us have a variety of credit cards. For some transactions, for example hiring a car, you can only use a credit rather than a debit card. Credit cards have become a useful addition to how we use money. However, too often people are unaware of how to use credit cards and don’t, can’t or forget to pay them off in full each month, so build up a larger interest gaining debt. This is when debt becomes not ok.

Money Saving Expert, Martin Lewis is always repeating the mantra to pay off all credit card accounts IN FULL each month. By getting into the habit of doing this you stand a better chance of keeping control of your finances.

In the UK at the moment, 11.5 million people have less than £100 saved. What would that buy? It wouldn’t replace the washing machine, or get the MOT done on the car. It wouldn’t even be a deposit on a holiday or be enough to have the gas boiler checked and serviced.

I have noticed a recent move from the banks to try to get us to save. Now when I open my online bank account, I am being guided towards saving a little each month around pay day, which is apparently the easiest time to save. Should we be doing this? Can we manage to save a little each month? If this were possible, would it alleviate the pressure of mounting debts. What would saving do for our financial well-being, the theme of this years Talk Money Talk Pensions Week?

It’s time for people to talk about debt and savings.

If you are having problems with managing your money, there are agencies to help you. It is best to go through a recognise channel like the Citizens Advice Bureau or LINK. Starting to talk about your debts and money management is the first step to getting it sorted out. Trained advisers can help you put together a plan to consolidate your debts and help you to work out how to prioritise paying them off.

It is unlikely that we will go back to saving for what we want before buying rather than getting it on credit. However, some credit types and debt are harder to manage than others. Picking the right credit for your needs can be the right way forward and the start of managing your debts.

Terri Bourne is currently writing a book about retiring from your small business.

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