13 reasons why good people have bad debts
Here are some of the main reasons it happens:
If you have a job and a clean credit record, the amount of credit you can get is quite staggering. If you already owe thousands you won’t pass the affordability assessment, but if your record is clean you can open any number of shop accounts or credit card accounts. Often shops will lure you with vouchers or discounts, or an offer of a new credit card will arrive just when you badly need some cash. It’s so easy to think you’ll do it just this once.
A lack of financial understanding
Many people leave school without really knowing how budgets work, what interest is, and what the difference is between good debt and bad debt. People learn the hard way when they suddenly realise how expensive life can be and how very big the difference is between what most of us want and what we can afford.
Signing surety for someone else’s loan
It’s different if it’s your child’s student loan, but think twice before signing surety for a friend’s business loan, or for a cousin’s home loan. Yes, you want to help, but many people have been plunged into financial crisis when they had to foot the bill when the friend’s business went under or the cousin lost his/her job. Don’t sign surety for any amount that you could not afford to lose.
Info hidden in the small print
People sign papers because they want the TV or the fridge now on hire purchase – but they don’t realise that they will be paying so much more for it than if they had bought it cash. How many people can really tell you what the difference is between an interest rate of 20% and 30%? They have a vague idea, but when it comes to actual figures the details are blurry. Some loan sharks also specialise in hiding horrible realities in small print – and pressurising people into signing documents quickly without being given the opportunity to read all of the contents.
Lack of financial management
If you’re working without a budget, there is little distinction for you between essential and non-essential spending. You just spend until it’s finished and then you use your credit card or your shop account to get by until payday. Within a year, this can build up to a huge amount of debt.
No distinction between wants and needs
It’s a human thing to want to treat yourself – especially on payday. But if it carries on throughout the month, red flags should be going up. It’s a need to get to work every day, but a new car is a want. Lunch is a need, but sushi is a want. If your state of mind depends on buying ongoing luxuries, very soon you could be in a situation where essentials go unpaid and you’re sitting on a mountain of debt.
Worrying about your social status
Watch the ads on TV: according to them there is a simple correlation between happiness, social acceptance and the purchasing of certain goods/services/luxuries. If you are status-conscious you are a sitting duck for any advertiser, as you will buy anything to impress others and convince yourself that you are acceptable. Buying goods on credit to show off is a sure and quick way to gathering debts.
Many retired people fall victim to investment scams because of the promises of high returns on their money. Just don’t go there. Check the financial credentials of anyone trying to sell you a high-return investment (and the fact that he is a deacon in the church is not enough). The last thing you want when you should be enjoying your retirement is to be dodging creditors.
Lending money to friends or kids
If it’s once-off in a crisis and the amount is not too staggering, then maybe you can do this. But not if it is ongoing and the person has not repaid the money they borrowed from you last year. Emotional attachments and cash do not make for a healthy mix. You might never see your money again and have strained relationships because of it.
Few things can cause as much damage to your bank balance as medical expenses, especially if you have no medical cover. Even a fairly minor operation could set you back tens of thousands of rands. In short, if you’re not prepared to use state hospitals, you need to have at least hospital cover. Paying for private medical care out of your own pocket could create the kind of debt from which you may never recover.
A wedding, a honeymoon, a funeral: all of these are extremely expensive, especially if you aren’t prepared to do it on the cheap. Everyone wants to go bigger and better and are afraid that if they don’t, the family will gossip or look down on them. In short: let them. If they are measuring you by such superficial things, how much value should you be attaching to their opinion anyway? You don’t want to still be paying off debts years after everyone has forgotten the designer wedding dress.
A sense of financial entitlement
Some people feel that the world owes them a certain standard of living. Uhm no, it doesn’t. No one is automatically entitled to anything just because they think they are. If you can’t pay for it, you can’t have it. And don’t expect others to foot the bill, either. Just because you grew up in a two-car home doesn’t mean that is what you deserve to have. Expectations should be adapted to individual situations. Not always an easy thing to do, I know, but the alternative is a life of crushing debts.
Sudden job loss
A sudden retrenchment can wreak havoc on your finances. It is difficult to plan for possible periods of unemployment, especially if you are barely getting by on your salary. A sudden loss or change of income is often the start of a debt problem. Being flexible and adjusting your expectations radically could be your only option.