Debt World
Figures released today show that borrowing here in the UK has slowed month on month but is nevertheless still at the highest levels ever and court debt judgements are at a 10 year high. I am sure this is true worldwide, though I don’t have the figures to back that statement up but this seems to be the way the world is these days. Where is all the money going to come from to pay off all this debt?
Debt used to be considered almost evil. People who became unable to repay their debts were thrown into prison, known as debtor’s gaol, and many people of recent generations considered that to get into debt was just plain bad. They would scrimp and save to buy things rather than get themselves into debt. Why was that? Didn’t they see the benefits of borrowing the way we do?
I suspect that fear was the key. They didn’t have the same sense of security about jobs and income that we do. There was generally less state support available years ago than there is now and the stigma of debt and particularly bankruptcy was much greater back then but maybe we have gone to far in the opposite direction.
Debt may not be evil and borrowing money to achieve certain aims makes good financial sense. Business has always borrowed money but when businesses borrow money they don’t do it to buy a big plasma Tv or a car unless those items benefit would the business FINANCIALLY. Business doesn’t generally borrow money just for the sake of it or just for fun. Everything has a reason and that reason is almost always to make more money.
Strangely, or perhaps not, the exception that seems to prove this rule is the financial industry itself where they have so much money they can afford to be extravagant with their spending on office buildings and interior décor where making money isn’t the aim. The reason they can afford to do this is because they already make so much money from us, the “poor†people who are busily spending all the credit they are so eager to offer us.
So, if business borrows money when they can see a profit to be made from it how come we don’t think like that? The difference is down to the different motivations we have. Business exists purely to make money. It is their mission, their only purpose in life. Business ONLY exists to make money and if they don’t make money the business dies.
People are very different and whilst we have our own individual motivations in life they are generally not financial. It may simply be that we want to look after our family, have a wonderful lifestyle, spend our life travelling the world or all of these things and many more. Unfortunately most of these things cost money and few of us have enough money to achieve all these things. It’s human nature to want better lives and those needs have driven man to develop from living in simple houses to where we are now, surrounded by complicated equipment and in relative comfort.
Our eagerness to improve our lives has always been a positive driving force for the development and improvement of or lives. However, this changes from being a positive to a negative when the finance companies start dangling the carrot of loans and credit in front of us. They offer us instant gratification as an alternative to patience and saving up. Our enthusiasm for the better things in life overcomes our common sense and we are lost.
If we submit to the offer of credit then we get products instantly but they cost us more in the long term. Suddenly we find ourselves no longer working to improve our lives but simply working to pay the debts. The amount of money we have available to spend is less than before because now we have interest to pay as well as the cost of the goods. Our standard of life goes down as the debts pile up.
The lesson is simple. Think twice before buying things on credit. Consider the additional cost of interest if you buy something on a credit card. For example, if you buy something that costs 1,000 units on a credit card charging 19% APR and pay the minimum repayments your interest charges will DOUBLE the cost of what you bought adding around 1,003 units. It will take about 14 & half YEARS to pay it off. The Tv or computer or whatever you bought will most likely be thrown out long before you ever finish paying for it.
Was it worth the cost? Would you like to buy something else on your credit card? Can I tempt you?
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