CAUSES AND CHALLENGES WITH DEBT IN PERSONAL FINANCES
In times of economic uncertainty, we mainly focus on meeting our family’s immediate needs. If in debt, we hope to meet our obligations to lenders and even if we run into challenges with repayments and negotiate new agreements, the mental burden remains. Hence, debt elimination is a common financial goal for many.
For purposes of today’s discussion, I have four main categories of debt:
- Consumer debt: Money borrowed to finance lifestyle through housing, shopping, entertainment, transport, schools for children, furniture, holidays etc.
- Student loans: Loans to finance higher education.
- Investment loans: Funds borrowed to set up and run businesses or purchase assets to sell when prices go up.
- Mortgage loans: Loans to purchase homes to reside in.
If in debt, what is the real reason why you are in debt?
In the course of my work as a Retirement and Financial planner, I deal a lot with debt issues. While some debts are due to real emergencies, it is apparent that some are mere symptoms of other underlying problems such as:
- Poor planning
- Discontentment with one’s economic position leading to living beyond one’s means
- Envying what others have and wishing to have similar or better ‘things’
- Lack of financial discipline and maturity as evidenced in lack of delayed gratification
- Fear that things could get worse and hence the need to secure something now rather than later
- Greed to have more and more; in most cases more than one needs
- Peer pressure; borrowing just because everyone does it
The challenges of debt
In addition to increasing the cost of a purchase, the challenge with debt is that it robs us of very valuable of peace of mind and financial success arising out of implementing a thought out plan by sabotaging our efforts leading to wastage of resources. With a credit card in your wallet, you can easily buy stuff that you do not need and end up not using them or buy things that would be better of leased.
Moreover, debt robs us of opportunities to:
- Be creative by taking the easy way out. For some, due to availability of credit they do not explore other options of meeting their needs such as generating an additional income from investments, interests and hobbies.
- Grow and mature by exercising delayed gratification, inadvertently not modelling financial maturity to the younger generation.
- Experience future financial flexibility and financial freedom.
Most importantly, we rob God the opportunity to provide for us by taking matters into our own hands without giving him a chance to act through his own means and in his own time.
What now?
An understanding of the three economic principles should prompt us to plan for emergencies since they will certainly come. Through planning we set financial goals and progressively pursue them knowing that, better times are ahead and there will be ample resources for whatever we need in future.
The following scriptures have helped me to put a perspective to how I deal with debt in my personal finances.
- Luke 14:28 (NIV) Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it?
- Proverbs 22:7 (ESV) The rich rules over the poor, and the borrower is the slave of the lender.
- Proverbs 13:11 (ESV) Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.
- Deuteronomy 15:5-6 (NLT) You will receive this blessing if you are careful to obey all the commands of the Lord your God that I am giving you today. The Lord your God will bless you as he has promised. You will lend money to many nations but will never need to borrow. You will rule many nations, but they will not rule over you.
- Hebrews 13:5 (NIV) Keep your lives free from the love of money and be content with what you have, because God has said, “Never will I leave you; never will I forsake you.
In our next article, we will explore instances where debt can be useful in personal finances.