Avoiding the Slippery Slope of Debt

Private consumption has been increasing steadily. We're happily consuming away. Sometimes even financing our desires with a small loan here and there.

I've recently bought and refurbished my apartment. I've had to finance this purchase and the refurbishment with a significant mortgage and some personal loans. From my personal experience I find it very easy to get mixed up in debt without notice. Managing a growing amount of loans and re-payments is not an easy task. Having the ability to take more loans creates an illusion of well being and surplus cash which is very dangerous. The question "can we really afford this?" is not always asked. In my apartment I did my best to make the smallest concessions possible. I'm still balancing myself every since (6 months now). Couldn't I've just settled for cheaper tiles?

I don't think life is just about saving and being frugal. I believe we should lead a life worth living without questioning ourselves every other step of the way. However, we should be very aware of our earnings potential and our derived ability to finance our consumption with the bank's money.

Debt is a slippery slope. By definition we repay more then we loan. In times of economic slowdown or temporary difficulties we might find ourselves quickly financing our loan repayments with another, more expansive, loan as we've become more risky lenders. And so on and so forth.

Financing consumption with loans is a big no in my opinion. Consumption can be delayed and gratifications postponed. There is no real happiness in buying another suit or another music player or even taking a vacation on a loan. Consider the following carefully before financing consumption with loans:

#1 How Frustrating it is paying for something you've already forgotten

Hope you enjoyed that trip enough to last you through all the re-payments appearing on your monthly reports. There is a nasty after taste to paying on installments for something you hardly even remember now.

#2 How easy it is to lose control over re-payments

Paying on credit, taking a personal loan, a mortgage and having a bar tab all add up and are terribly difficult to control. It won't be long before you find yourself drowning in re-payments with little ability to afford anything else.

#3 Paying interest is simply wasting money

You could have saved the money payed on interest or consume it otherwise. Sometimes financing is a must (like buying a home) but when it is avoidable just avoid it. Would you have taken that vacation if it cost you 15% more? Take into account the cost if interest.

#4 Constantly repaying debt degrades your ability to build your future

Constantly paying back debt paints your horizon grey instead of blue. We need to look to the future with hope and not with endless debt repayments. Lowing debt slowly and shifting the money to savings will truly empower you in life.

I believe we, as consumers, should have some patience to build a solid financial base which will then allow us to spend with little worries and a care-free mind. Naturally, we won't be able to afford everything but we would enjoy the things we can a whole lot more.

Image by Wallyg