Ever wonder why people get into debt? I mean, we all know that debt is bad. But let’s be honest now, the “debt system” is built in such a way that we’re encouraged (forced?) to get into debt in order to get a credit score and be seen as a good citizen. And think about this, financial institutions (banks and those that like to offer you debt) keep telling us that they care for us and want us to live our best lives, and then they insist that we get ourselves into debt which obviously messes our dreams up.
That probably sounds cynical and a bit messed up so let me try explain what I mean.
In fact, have a listen to the interview on Cape Talk radio discussing this topic.
How we are forced into debt
From the first day you start a new job you’ll hear friends and family tell you that you need to get a good credit score. You “must” go out and get a store card so that you can build up a credit history as soon as you can. You’ll need this positive credit score in order to get a loans and possibly even purchase a property one day.
That’s all fine and well, but in order to get a credit score you have to take out debt somewhere and prove that you can pay it off. Getting your first store card or credit card is a sought after thing for many youngsters as it’s a sign of adulthood. We’re kind of brainwashed into believing that this is a good thing and that we really need debt in order to live a better life! We obviously need credit cards, store cards, vehicle finance, short term loans, etc as that’s just part of life…. That’s what we’re told.
Life for Ms Savvy
Think of 30 year old ‘Ms Savvy’ who has never had any debt. She owns a old car that she bought second-hand (with cash) and has survived quite well living within her means. In fact, she even has some savings, a retirement fund and a small investment. She’s managing her money really well! Probably better than 80% of people!
Now if financial institutions (the banks and ones offering debt) were serious about understanding our financial needs and doing things in our best interest, then they would surely recognize Ms Savvy’s great financial skills and understand that she knows how to manage her money. If the time came that Ms Savvy needed to borrow money to purchase a property then one would expect financial institutions to be fighting for the business as she has demonstrated many years worth of good money management.
This however is not the case as Ms Savvy would most certainly not qualify for any finance as the banks are really not interested in how well you are able to save and invest, they’re only interested in your spending habits and how much debt you have.
That seems back-to-front doesn’t it?
The “debt system”
The financial system relies of people being in debt. There is a huge billion dollar industry that revolves around people’s debt! They make a lot of money off you and it’s in their best interest to keep you enslaved to debt. The narrative from call center agents focuses on the convenience, the benefits, the lifestyle, your needs and the fact that you deserve better, but they neglect to tell you about the long term effects. A bit like the cigarette adverts from a few years ago. They depicted the life of luxury, fun and opulence but yet we all know how bad smoking is for you.
So why do people get into debt? Well, the “debt system” wants us to be in debt and as long as we keep believing that it’s okay to have debt and that the convenience of debt far outweighs the financial costs, then we allow the system to grow and we’ll stump our own growth and freedom. It’s all a grand marketing ploy and so many companies, brands and society buy in to it.
Why do people get into debt? Time to retrain our brains
It may seem like a depressing rant, but there is always hope! Have a look at these 4 steps to retrain your brain with regards your relationship with debt.
1 – Face reality
Firstly, it’s time to face reality and understand that debt is a slow killer and that you really do not need debt! If you want any level of financial freedom you’ll have to learn to live within your means!
- Create a budget – check out the Budgeting 101 course
- Acknowledge and track your expenses
- Think about where you’re spending your money
- Stop buying junk LOL
2 – Dream big
Think about life without debt. What if you could take home your whole salary and not have to give anything up to debt payments. No car payments, no home loan, no credit card debt, etc. How would that change your life? Just imagine how much free cash you would have available and how you could invest it and also spend money on things that are really important to you.
Look past your debt situation and allow yourself to dream a bit.
3 – Know that you can be debt free; join a community
Dreaming about life is lovely but it doesn’t help much much without action!
Join the online debt free community via your favorite social media and keep engaged with what others are doing. There are hundreds of great blogs and it is easy to find one that resonates with you. Being part of a community is a great way to stay motivated and to meet others who are either already debt free or who are working towards it. Sign up for my newsletter as a start.
The more like-minded people you meet the easier your journey becomes.
Personal finance blogs that I like
4 – Make your debt-free plan now!
See my book on How To Pay Off Debt. This will take you through the full process of understanding your debt situation, and the order of actions to take. You’ll get to make your own debt payment plan and ultimately pave the way to become debt free.
Final thoughts about debt problems
Don’t be fooled by the phone calls and letters you receive offering you a better life with the short-term loan, credit card or whatever it is they are offering. It’s only a short-term satisfaction and once you fall into the debt trap it only gets worse!
Debt is bad and you should never let people try to convince you otherwise. The rule is simple, spend less money than you earn!
Take charge of your money!
Oh and did you hear the final question in the interview where I was asked whether you get good debt and bad debt? Well I posted about it here – Do you get “good” debt?
Great post Brendan!
I agree 100%. Banks and other institutions are in the business of making money. They’ll have their own interest first, before thinking of yours. Keeping you indebted surely helps them! And consumerism keeps the wheels of Capitalism (with a capital-C!) turning, so the cards are stacked against the individual.
Luckily there’s a way out. I saw the light only recently, but the changes I’ve implemented since then is reaping amazing rewards! Paying off any outstanding debt, NOT getting into any new debt, investing the money you saved aggressively, makes a huge difference!
Keep up the good work of spreading the word!
Hamster
I like the last part where the presenter asks you “is there good debt and bad debt” and you say “no, debt is debt”. Cool article.
Lol thanks. Yes, I don’t believe in this ‘good debt’ thing
Great article 🙂 I’ve only recently ‘woken up’ to this and am on my way to being debt free. I’m in New Zealand where things work slightly differently but the banks behave in similar ways. Many people here are ‘going tiny’ by building tiny homes that are more affordable – but most banks won’t acknowledge these as homes so wont lend at all. They want you to borrow big. They don’t really have our best interests at heart.
Ms. Savvy is a lot like me… I didn’t have a credit card until I was over 30. I had student loans up to that point and my credit was 780. When I was in the process of getting my 3rd mortgage, the mortgage broker said… hmmm… I’ve never seen this before but your credit is non-existant! LOL. I had to get a credit card and now my credit score is 820. Read more at welbournewealth.com