OPINION: The Debt Trap
It has been said that the only difference between someone with a job and the unemployed is two or three pay checks. It is a fairly debatable statement but certainly not far from the truth.
Falling into debt is very addictive and these days easier than ever. Another credit card, another retail account, a bigger mortgage and there we are on our way to a better life. The mentality of enjoy now and pay later is currently well established. Debt doesn’t discriminate – everyone is welcome.
Every time you incur debt you deliver yourself to someone; someone for whom you pay a portion of your monthly income merely to service the interest on your debt. Create enough debt and you ultimately work just to serve these masters.
Do the following sobering exercise. Write down all your debt (house, vehicle, loan, overdraft, credit cards, retail accounts, etc.) with the interest rates next to it. Then multiply that interest rate with the outstanding amount and add it all together.
Most people who do this exercise are shocked when they see the result. It often happens that between 50% and 70% of a salary goes towards paying the interest on a loan.
The big question is how to escape this debt trap. Unfortunately it is not so easy. Spend less or earn more is usually the first solution, but that is easier said than done and doesn’t confront the root of the problem.
The password to escape a shopping addiction is planning. Plan your strategy thoroughly to repay your debts and put it on paper so that you can refer back regularly.
However, not all debt is bad. A mortgage on your home, a second property that you let or buying shares in a business can be positive and can create a secure income and consequently wealth.
So make sure you create debt for the right reasons. Start today to reduce your stress by taking control of your finances and your life.
Max van der Wath is a registered financial adviser at PSG Financial Services.
