People find themselves in debt for a number of reasons: lack of financial literacy, lack of discipline, an unforeseen financial crisis, such as loss of a job, black tax, or because they’re trying to keep up with the neighbours or buy that VW campervan for sale that they fancy at the garage down the road . If you are not conscious enough about the choices and decisions you make about money, you can easily find yourself buried under a mountain of debt.
Most people feel overwhelmed, anxious and discouraged when they’ve accumulated a lot of debt. They soon develop one of various coping mechanisms:
Some people simply ignore their debt, hoping that it will somehow magically disappear. This is called the ostrich mentality: you hide your head in the sand in the hope that when you look up again, all will be fine.
Some pretend that nothing has happened and continue to live it up. I call these people fabulously broke: they pursue the high life, pretending to look great on Instagram, but live in fear that, at the drop of a pin, their life will fall apart.
Some people end up feeling sorry for themselves and act like victims.
Unfortunately, society paints a false picture of ‘success’, based on who looks the flashiest on social media. Popular opinion wants us to believe that those who are the loudest and flashiest are the most successful. Well, don’t get me wrong here: social media can have a positive effect on your life and on your business if used strategically. But too many people use it as a benchmark for success when they see their peers living it up. And although everyone knows that posts are staged to present a perfect picture of someone’s seemingly perfect life, it can be difficult to differentiate between the fake pictures and real life.
We live in an aspirational society, where material success is hugely sought after. For most people it means driving a flashy car, living in an upmarket house and always looking like a million bucks. But many of those who pursue this image find themselves in a financial mess that is of their own doing. I know that it will upset some people if I say so. They might say they didn’t have a choice in the matter. While I concede that this might be true in some cases, the majority of people do have a choice.
Bad debt refers to amounts accumulated through impulse and lifestyle purchases, especially if you cannot afford the repayments. Bad debt can also accumulate if you purchase basic items, such as groceries, on a credit card instead of budgeting a monthly or weekly cash allowance for the expense.
Not all debt is completely bad. It is always prudent not to get into any kind of debt, but if you need to further your studies and do not have other financing options, a student loan can make sense. Also, it can make sense to take out a home loan to purchase a flat or a house (everyone needs a roof over their heads), or a car.
The best option is to take out a loan you can comfortably afford. Avoid getting yourself into a fix by exposing yourself to too much debt risk.