Consumer Debt vs Investing

I recently posted on the Highline Property Instagram account about consumer debt and investing.

As a business owner, it’s very easy to take for granted some of the areas around financial planning that are key to getting to a good personal cash position and maintaining it.

I was recently approached by a good friend who has saved up some money and is looking to buy a 2 bedroom flat. He wanted my advice on which areas of the city I would buy-in for investment. When we dug into his position I discovered he had around £20k of consumer debt this may seem like a lot but it’s pretty normal from what I can make out.

Car loan, old car loan, credit cards and store cards… the types of consumer debt many people find themselves with.

This was costing him around £500 a month! So any investment he made right now was effectively negated by this debt.

We sat down and it was apparent than by clearing this debt he was an immediate £500 a month better off in personal cashflow and still had enough to buy a 1 bed flat in a reasonable area!

Scenario 1:

Consumer Debt: -£500 a month

Investment property: £450 a month

Balance: £-50 a month

Scenario 2:

Consumer Debt: £0

Amount Saved not paying debt: £500 a month

Smaller investment property: £325 a month

Balance: £825 a month!

Consumer debt is very expensive, anyone looking to invest should look to clear any bad debt before they get started, even though you want to feel like your making your money work hard by investing it, having that debt is costing you more than you realise.

The sooner you can clear all debts the harder your money can work for you.

In reality, my friend was never going to be able to invest £20k and get £500 a month income with any investment but this is exactly what he has done by looking at the bigger picture.

Please note this is just my opinion and does not constitute any form of advice or recommendation by and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.