At Super-Advice we are about all things financial, but more importantly, helping people understand so they can get ahead financially.
In today’s blog post we share with you all about debt. If you have been using debt incorrectly, you will be feeling pain, especially in an environment where interest rates are going up and it’s a cost of living crisis.
What is debt?
Debt is borrowing money that you have to pay back.
An example would be a vehicle loan, a mortgage, buy now, pay later, store cards, Q cards and credit cards.
All these things are a facility that allow you to buy something when you don’t have the money to pay for it.
Unhealthy ways to use debt
Unhealthy ways to use debt are to buy fun things with loans. If it’s fun and you’re using debt to buy it, it’s probably unhealthy use of debt.
An example would be a holiday, Christmas presents for people, new clothes, new couch, new tv, all these things, if you borrow the money to buy them that is the classic INCORRECT use of debt it’s called consumer credit.
In our opinion that is bad debt, that type of debt has been designed so merchants and shops can sell stuff to people that are broke, and that’s to benefit them, not you!
So we don’t think that’s good.
Good debt technically is borrowing money to potentially invest and making more money on the investment to pay back the debt with some left over.
Debt that we think is acceptable is a mortgage and at times a SMALL vehicle loan to get from A to B, but that’s it – not a fancy car you dream about. The rest of the time you should just use your own money – and if you are broke – miss out.
What happens if I keep using debt?
If you continue using debt, you are gonna come unstuck.
What’ll happen is that you will borrow money, have to make payments on that thing, and then you’ll borrow some more money, have to make payments on that thing as well, and then that thing and that thing, and obviously it’s gonna consume all of your income!
And then you’re gonna have to buy food on credit, and then you’re gonna have to start paying your rent on credit, and it’s a spiral that goes to doom, and you’re going to become bankrupt.
What is bankruptcy?
Bankruptcy simply means you have more bills than you have the money or capacity to pay those bills………ever.
So you’ve gotta throw your hands up in the air, and you will be made bankrupt, then you won’t be able to borrow any more money for about seven or eight years. It’s not a good thing to do. We would rather work with people to get them out than to declare bankruptcy.
If a business spends more money than it makes and then uses too much debt, it just goes outta business, it goes broke. People can do the same thing.
The only way to get out of debt.
Do a budget, find out how much spare money you have, find out how much you can lower your discretionary spending to create spare money, and then list all of your debts.
And then you put all of your spare money on the smallest debt and you pay that off. You make minimum payments on the others, and once the smallest debt is paid off, take that money and any spare money and you put it on the next debt, and then you put it on the next debt, and then you put it on the next debt.
And it might take a year, it might take a year and a half, two or three years. But if you continue the course, you will become debt free. Now, when you get paid, all your money is yours.
Make a budget, and find spare money. Line up the bills from smallest to largest. Pay the smallest first, and then work your way down the list until they’re all gone.
Just say no
The number one way, psychologically, we think, to get out of debt is just to get used to the word NO!
You don’t have the money. Understand that. Look in the mirror. I have no money. Don’t tick it up. Just say no, But it won’t be forever. And then you’ll come out, with no payments, no debt. Follow our other steps, and you will create financial freedom.
I guarantee it.
That’s a wrap
Did you learn something new today?
If you need any financial help or advice please get in touch with us at Super-Advice.