Okay, I Know About Prosperity, What is Debt?

Debt is a noun, it’s a thing.  We can owe a debt of gratitude for something another has done for us.  When we are in debt, we are bound to another for what they have done for us.  When we’re bound by loyalty or gratitude for what another has done for us, that’s a good thing.  It is what strengthens relationship bonds between people.

Debt is money owed for a product or a service rendered.

Typically debt is money owed for a product or a service rendered.  This kind of debt also forms a bond, but not necessarily a good one.  Financial debt is a form of bondage, also known as slavery.  When you owe someone money, you are bound to them, to pay them back, usually more than the cost of the original product or service.  In this sense of the word, debt is not contributing to our freedom or prosperity, it is taking it away.

How do we get into debt?

How do we get into debt?  Usually it is when we want something bad enough to go out and get it before we have the resources to pay for it.  If we wait to accumulate the resources, we have to say no to our wants for a while.  Building a financial reserve can be frustrating, but it actually benefits us and brings prosperity in a few ways:

  • Building the financial reserve strengthens us financially.
  • It strengthens our self-discipline.
  • It allows us the time to evaluate our priorities.  Which of these items or services is more valuable?  Which is more important?
  • It helps us reduce or eliminate impulse buying.  Think about this: why do Americans have so many yard & garage sales?  Because they spend so much money on things that they find out later weren’t really that important to them.  Waiting until you have the cash to buy something and evaluating it against other things we want to buy forces us to evaluate the purchase more critically.
  • We actually earn interest on the money we are accumulating, as opposed to paying interest on the money we would borrow.

Consider this last point.  Credit cards are a form of revolving credit, meaning as long as you pay something on the card, the company holding the card will continue loaning you more money, up to a specified limit.  They don’t do this out of the goodness of their heart, however.  They charge you money, a lot, for the privilege of having the convenience of paying for it later.  Many cards have rates near 16%, some more and some less.  In order to pay off a $5000 credit card balance at this rate of interest, you have to make payments of about $125 per month for nearly 5 years to pay it off and you end up spending an extra $2000 (on top of the $5000 you spent on your stuff) for the privilege of doing so.  And that’s if you don’t continue to add to your balance with new purchases.  Is the sale you buy things on with your credit card really saving you money if you end up paying 140% of the item’s value for it because of interest?  We have the freedom to borrow, but that quickly turns to financial bondage.

Is all debt bad?

I would have to say that consumer debt is bad.  Consumer debt is defined as debt to fund consumption as opposed to investment. In other words, when you go into debt to purchase things you are going to eat, wear (and thus wear out), or otherwise use up, you have acquired consumer debt.  We all consume things every day.  That is part of nature because we have to eat and things like shoes and clothes wear out, we put gas in our cars, etc.  The problem comes when we consume more than we produce, or when we consume more than our income allows us to without going into debt.   What’s the easiest way to consume more than our income allows us?  Credit card debt!  According to NerdWallet.com, the average credit card holder with debt in 2013 holds about $15,000 of debt.  It’s easy enough to do: think about putting a nice dinner out or a pizza party for friends on your credit card.  If you carry a balance on that card, meaning you don’t pay it off each month, you could easily pay for those 2 or 3 times over by the time you do pay the card off.  Who will your money work for, you or the credit card companies?

What about the purchase of a home?

There is some debt that is reasonable.  Borrowing to purchase a home to live in is reasonable.  That is a long-term purchase that helps build stability in your life and your family’s lives.  It’s important to make sure the home is within your means, though.  Paying for more house than you need and can afford is a sure-fire way to limit your freedom.  Borrowing for education can be reasonable, but it seems that more and more people are finding themselves in serious bondage for having borrowed to get a degree with the promise of a good-paying job.  They complete university schooling only to find they are not needed in the workforce.  They may have been better off learning some skills in a trade and going to work more quickly to provide for themselves.  They could even look around for opportunities to serve others and build a business based on the need they find.  Before borrowing for housing and education, a person should still build up a financial reserve that can help them lessen the loan amount they would need to borrow.

How do I get out of debt?!?

If you find that you are in debt for things over and above a home and/or education, you are not alone.  I’ve been there, too, and there are some sensible tools to help you get back on track to finding prosperity in the next part of this article.

We’ve explored what debt is, Part II of this article is How do I get out of debt?

Take the Challenge… What is your debt?  It’s time to list it all out.  Grab a sheet of paper and make four columns.  List each item of debt such as a house payment, vehicle payment(s), gas card, credit cards, etc. in the first column.  In the next column, list out the total debt for each item.  In the third column list the minimum monthly payment.  Finally, list out the time (number of months) required to pay the debt off with just minimum payments. Once you have everything listed, move on to the next part of this article to find out how to eliminate it!

Go to Freedom and Debt, part 2

Return to Freedom and Prosperity

Return to Finding Personal Freedom Home