Get out of debt...?

[CynicalSurvival]

Some people and books have recommended getting out of debt as part of prepping. Now, obviously I would like to be out of debt, but my mortgage isn't going to go away anytime soon... I could reduce or increase payments, however, as I have a flexible deal.

Can anyone tell me:

- Why is debt reduction seen as a priority? (beyond the obvious - the less debt the better)
- Would it not be better to pay of my mortgage debt more slowly, to allow me more to spend on sorting my house and buying supplies?
- What would happen to my mortgage in the case of societal collapse? Would it not cease to exist in any case?

Thanks!

[hagggis]

I think we need to distinguish between debt and available cash. If you have little available cash you may be vulnerable if the banks fail. Cash is probably better held as valuable metals / coins rather than currency as currency itself may devalue very quickly when SHTF. You can be in debt with a mortgage but have £1000 of gold and silver in hand...

[Devonian]

I'm no financial expert, but paying off your mortgage 'slowly' means that you will end up paying huge extra amounts to clear the debt. Whereas paying it off quickly can save you 10's even 100's of thousands of pounds in comparison.

As for societal collapse, do you really think that there won't be a claim on it from somewhere..... you're simply more likely to end up homeless in my opinion.

[Deeps]

Some people and books have recommended getting out of debt as part of prepping. Now, obviously I would like to be out of debt, but my mortgage isn't going to go away anytime soon... I could reduce or increase payments, however, as I have a flexible deal.

Can anyone tell me:

- Why is debt reduction seen as a priority? (beyond the obvious - the less debt the better)
- Would it not be better to pay of my mortgage debt more slowly, to allow me more to spend on sorting my house and buying supplies?
- What would happen to my mortgage in the case of societal collapse? Would it not cease to exist in any case?

Thanks!

It seems you're basing your logic on 'knowing' that things will go pear shaped, I know we all prep for it but it doesn't mean it will happen. What happens if we just go bobbing along, being mortgage free would be pretty bloody good. Even if things do go badly wrong for a while, once things are back on their feet, interest rates may well rise for whatever reason so getting it paid off quicker, especially at times like this when interest is going to be as low as it ever will be seems to make sense to me.

[dangerman]

You've come on just that right day to receive a danger-lecture!

I've just had a letter this week telling me that my two year fixed deal was expiring and invited me to renew. So I did, and I've also added an overpayment plan to it because the interest rate was reduced meaning that my required payment was reduced. This way, in a significantly reduced time, I'll own my house outright.

Have a look at the overpayment calculator here:

http://www.moneysavingexpert.com/mortga ... calculator

By clearing slightly more than the regular payment you can clear your mortgage early (by decades sometimes) and save tens of thousands (or more) in interest. In my case, rounding up the figure to the next comfortable around that I saw fit (an amount that I feel I can afford but won't cripple me) has reduced my predicted time to pay the house off by 12 years and cut the total payable amount of interest by 22K. That means that I should own my house by the time I'm 49. Should I have stuck with the original mortgage plan I'd still be paying it off when I'm 61. That could make the difference between having to work and not. Or working part time or full time when I should be retiring.

Whether this is right for you depends on what you're prepping for. In my personal opinion, there is no way a full economic collapse will ever happen and so I will always owe this money. It's about likelihood I suppose. For me, I feel like it's much more likely that I will get ill at some point as I get older, and owning my house will reduce my burden. It is also an investment, I could rent it out and have a small wage generated just from owning it. Or I could sell it and use the money to do cruises and travel the world before I snuff it.

[featherstick]

Dangerman has covered the main reasons for paying off your mortgage early - I would like to underline them. If we had any spare money, it would go here, as the benefits are so huge. Being mortgage-free, and therefore owning all the equity in your house, give you a range of options otherwise unavailable - sell up and downsize, work part-time, take a year off to travel etc. Play around with the mortgage calculator to see the difference.

I want to pick up on this point:

- What would happen to my mortgage in the case of societal collapse? Would it not cease to exist in any case?

It is highly unlikely that society will collapse to the extent that no-one will have a claim on your outstanding debt. In countries that I have know that have gone through sudden transitions, debt gets sold and re-sold at pennies on the pound until one day Frankie Knuckles knocks on your door to collect on what is now "his" loan to you.

[Bad Wombat]

To me, being out of debt, gives me greater resilience in the case of a drop of income. I'm essentially self employed and debt reduction has always been a part of my plan.

[BaseOne]

Not sure whether it's possible with UK mortgages, but it's quite normal here to take a house loan over the maximum period (say 25 years), fix your payments and then overpay the balance as and when you have something spare.

The benefits are twofold: 1) if things get tough, you haven't already committed to a short-loan-term high-monthy-payment scenario which might stretch you, and b) you still have the flexibility to overpay if and when you want.

[Deeps]

Not sure whether it's possible with UK mortgages, but it's quite normal here to take a house loan over the maximum period (say 25 years), fix your payments and then overpay the balance as and when you have something spare.

The benefits are twofold: 1) if things get tough, you haven't already committed to a short-loan-term high-monthy-payment scenario which might stretch you, and b) you still have the flexibility to overpay if and when you want.

It really depends on the mortgage, they're big business. I've not changed my mortgages for a good few years because the interest rates are so low, the one I have on my own property allows me to take a number of 'holidays' as long as I have a good reason. I overpay mine as well some allow it on a regular basis, some allow a small number of overpayments a year etc etc.

A lot of people might get a shock when they renew, the conditions are a lot stricter now, a friend of my wife was putting down about a 75% deposit and they were still at her to prove she could live within her means.

[CynicalSurvival]

Many thanks for those thoughts.

I am not one to see total economic collapse looming on the horizon, and I'm not naive enough to think that I could stop paying my mortgage if my bank went bust in a 2008-type event. However I do think that society will radically change sooner or later, probably within 20-30 years. Inside that timeframe oil will have long since peaked, and globally we will have a major energy and food crisis to dwarf what we have now, and that is to speak nothing of the devastation caused by global warming and its knock on effects in terms of migration and war. But you are probably right that all of that can happen, but someone will still be knocking on the door for my mortgage payment, lol!

I think you are right that it's about risks. I know that paying off my mortgage early would save me 1000s on paper, but remember that mortgage calculators assume that everything else stays constant, which it won't. I just think I might be better getting a low 10 year fixed rate and having slightly more to spend upscaling and equipping myself - not for a total apocalypse, but for a future which is likely to be considerably rougher and more dangerous than the present.