Buying a house and starting a family got me into a spiral of debt I thought I’d never escape from – but paying for most things in cash saved me, writes our guest author Katie Johnson.
This is a guest post by Katie Johnson. All views expressed are Katie’s own and not necessarily shared by Which?.
My debt problem started at uni in the late 1990s. I just didn’t have enough money coming in to cover costs: the near full-time job barely covered my rent (this was before minimum wage) and my parents didn’t have a lot of money to help me.
So I came to rely on credit cards, overdrafts and store cards for day-to-day living. I had a store card for almost every shop. I relied on them for my clothes, sometimes buying books I needed. It was crazy how easy credit was in those days. I left university with about £2-3k of overdrafts and store card debt.
I think if I’d just stuck to using cash and budgeted, I could have avoided this – but at the time having debt didn’t seem like a big issue… and so it went on.
After uni, I met my husband and we wanted to buy our first house. We took out a £6k loan for our deposit – incredible to think you were able to do that back in the early 2000s… then we got a loan to buy our first car.
We got married in 2002 – we took out a loan to pay for our wedding and honeymoon. We didn’t even have big incomes, but loans were just so easy to get – no one refused us. And it just went on like this.
By 2005, between the overdrafts, credit cards and the loans for the car, the wedding and home improvements, we were over £53k in debt. Every penny we earned was now paying the mortgage, food, petrol and debt repayments: the debt repayments were 2/3rds of our outgoings. It was mad.
Being in debt is devastating. I don’t think you can ever explain how horrific it is getting 17 creditors calling you up five times a day, every day between 6am and 10pm at night. Telling me that I’m worthless. It was so tough. It can break you.
But in 2008 I took control. I did a course on personal budgeting with CAP (Christians Against Poverty) and applied the principles to our own finances.
2.2m UK adults still rely almost entirely on cash in their daily lives
Katie was in £53k of debt, but through budgeting using cash she was able to take back control
Many people rely on cash to manage their finances
— Which? (@WhichUK) April 3, 2019
We started using cash primarily to pay for everything and it entirely changed how we used and thought about money – you can’t go overdrawn with something that’s physically in your purse.
To budget, I opened two more bank accounts, one just a cash account, one as a savings account. Every month I put a lump sum of cash into the cash account and then took out a set amount each week and kept it in my wallet.
I’d have envelopes in my wallet for what the cash was for; the food shopping money, petrol money etc. If there was anything left in the cash account at the end of the week, we’d have a takeaway as a treat.
We followed this for eleven years and finally went debt-free in October 2017. We knocked 6 years off this debt management plan just because we completely relooked at our finances.
So much of this was achieved by just using cash to pay for things.
I work for CAP now as a money coach and it’s horrendous the effect debt can have on people. Every year we deal with about 8,000 people struggling with debt – and it can cause severe emotional and mental health problems.
It’s a huge problem across the UK. If some people just dealt in cash, if people were educated better around money management, so much of this debt and the suffering it causes could be avoided.