This is why you need to pay down your debt..NOW

June 18, 2022

The weight of debt

This last week, I just paid off a car loan which ran for 5 years. I now own this car outright and don’t intend to replace it until they stop making spare parts for it or the government bans the driving of diesel motors. Which ever comes first. Probably the latter the way things are going.

What a relief to get this cleared. It wasn’t killing me, but it felt like a weight hanging around my neck and it caused a certain mental drag each month.

I’ve never liked debt, but it is all I have known since I bought my first Renault car in 1999. These loans got paid off but more followed for better cars, new houses, home improvements and other trinkets, but in more recent years I’ve determined to wean myself off credit.

On one hand, we can say this is the just the way of the world but I see there is truth in the saying that, “we buy things we don’t need, with money we don’t have to impress people we don’t like.” The older we get and the longer we keep this cycle running, the more presumptuous we become. Tomorrow is not promised and we assume our circumstances will be the same or better than what they are today. Anyone who has been around the block a few times knows that it doesn’t exactly work like that. I have lived through several booms and busts over my lifetime. They appear to be getting more extreme and more frequent..

The chickens are coming home to roost

Despite the reports of runaway inflation and risk of global economic collapse, (Yes, I think something big is coming!) on the surface, things still look very frothy in the UK because people know there are problems on the horizon and they are trying to lock things in for the future. Houses prices have never been higher, new cars abound (if available to purchase) and people are still spending on entertainment and luxury goods. Mega mortgages and loans are still being issue, but in recent days the US has published worrying data, crypto is crashing and things are unravelling. When the dominoes fall in the US it won't take long to hit the UK.

No longer when I see a person with a large house or new car do I think they are rich. Instead, I just assume they are indebted. I wonder do they have the most to lose if everything goes south, while I do everything within my power to deleverage. Every week it seems economists are inventing a clever new wheeze to keep the show on the road -  the old Horace quote springs to mind, “you may drive out nature with a pitchfork, yet she’ll still hurry back”.  

You may drive out nature with a pitchfork, yet she’ll still hurry back

There is a storm coming

There is an economic hurricane headed in our direction and I worry it is going to take out the foundations of the Ponzi scheme that we have built our lives around. I'm no economist, but the government and the banks have been fuelling this merry-go-round with invented money they expected us to borrow then spend. We are hitting the end of an economic supercycle and it is going to hurt. When things hit the skids, when inflation and interest rates make repayment impossible, there will be no year of jubilee with forgiven debt. Your assets will be seized. If you haven't been doing it already, you need to build some extra runway. Get some savings locked away, 6 months at least.

I would caution that now is not the time to take on any unnecessary personal debt. There used to be an old Northern Irish joke: What was the fastest game in the world? Pass-the-parcel in a Belfast pub! You don't want to be left holding the 'debt parcel' when it finally goes bang. At least the smaller it is, you may only end up with some powder burns and not lose limbs.

Debt has got us into this mess, and unnecessary debt comes down to our society’s lack of patience. In the former days, we all understood seed time and harvest time. There was this important period of waiting and working, which was crucial for building character and faith. God’s goodness was expressed slowly. Modern man though, has become his own god and has made new rules. Hey, why wait on God when you can have it all today? This kind of thinking is going to be tested in the coming year or two.

Wealth is built slowly and carefully, a dollar at a time. Gratification should be delayed. Wealth management is a discipline like any other. I don’t expect by current western standards that I am or will be very wealthy, but I do like to sleep soundly in my bed. While some debt is necessary, we don’t need as much as we might think.

While some debt may be necessary, we don’t need as much as we might think.

If you are going to borrow, you need to have your wits about you. Everyone is smiling on day one, but several faltering steps and you can end up in the vice, looking like a busted melon. There is never much sympathy and all your friends, relatives and onlookers will claim 20/20 foresight as the bailiffs are walking through your living room with boxes full of your stuff.

Carefully measured necessary debt can be a sensible option. You need a house and some transport but if you take on debt, you must also build a savings buffer. When the financial storms hit, as they always do, you need to ride the storm out and deal with the aftermath. If you can get that debt paid down now - do it. Soon, it is going to become very expensive to service. Don't delay.

Slow and steady beats boom and bust every day. You can't beat the system. Our short, brutish lives seldom allow us to learn this lesson, but we can read history.