There are many forms of debt — such as bonds, car loans, credit cards, hire-purchase loans, retail-store cards, bank overdrafts and personal loans, and eliminating and controlling it takes commitment and discipline.
The most obvious fix is to increase your minimum payment, and when interest rates decrease to ensure that your repayment is kept the same and doesn’t adjust with the interest rate decrease. But I’d like to concentrate on the not-so-obvious cost of debt, the softer issues most people don’t think of: reduced flexibility, increase in lifestyle risk, and Jones syndrome.
Reduced flexibility
By increasing your debt position and having large monthly repayments, you limit your freedom of choice. For example, it’s a lot harder to consider career changes that may require a reduction in monthly income for a period of time; and you restrict your chances of starting your own business, as your cash- flow requirements may not permit it. A heavy debt burden means you may not be able to take advantage of opportunities that come your way, either at work or at home.
Increase in lifestyle risk
The more liquid (cash in hand) you are, the easier it will be to sustain your lifestyle, even in the event of a temporary loss of income. This is especially pertinent in times like these when job security is at risk. Your risk increases that much more if a large portion of your net monthly income is being used to repay debt and you find yourself without a monthly income.
Jones syndrome
Another hidden cost of debt is that old clicho, “keeping up with the Jones’s”. We’re competitive creatures by nature and may find ourselves buying “up” simply to keep up with your neighbours. A good example of this is a car loan. Often when the last repayment on our car is made and the debt is paid, we’ll rush out and buy an even more expensive car because our neighbour/best friend/colleague has a posh new BMW. But remember, all you’re seeing is her car — what you’re not seeing is how much money is owed on that car. I wonder if we’d be as eager to upgrade if car number plates depicted the amount owed on the car as opposed to its registration details!
Too often debt is incurred for the wrong reasons and trying to then rectify that position is a long and arduous journey. If more people sat down and considered what was really important and built a lifestyle around that template, more income could be spent on enjoying that desired lifestyle — rather than servicing too-heavy debts.
Get rid of debt – permanently…
1. Acknowledge your debt Write it all down and inform yourself of your exact position.
2. Devise a plan Work out a concrete repayment plan.
3. Stop the spend Compose a mantra that you say to yourself before you spend any money. For example: “My inside worth is more than my outside goods.”
4. Measure your progress Keep a diary of your repayments. List your expenses in the journal’s emotional section — this will highlight your feelings towards money and give you insight as to why you spend.
5. Celebrate your success Not by spending, but by entering into a regular savings plan, once you’ve eliminated your debt.
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