Look, having no debt is great. But some debt can be a benefit. So how do you figure the good from the bad?
Unhealthy debt is used to buy something that doesn’t grow in value, and may even lose value over time. Things like cars, furniture, cell phones, groceries and clothes fall under this category. This is obviously very annoying, because these are things you need. But you can avoid going into debt for most of these by only buying things you truly need when you truly need them, or delaying the purchase if you can’t afford it right now. If you have to buy something, consider saving up for it instead and focus on quality and keeping costs low. Some examples might be to go for a quality brand of jeans in a classic cut and colour, avoid replacing your cell every two years, and go for a reliable second-hand car or opt to use public transport wherever you can. While you’re at it, you may want to consider embracing a minimalist approach.
These are a really common source of unhealthy debt (we really hate these), especially because some young people are taught that this is the best or only way to build up your credit. There are loads of different ways to start building your wealth, and racking up debt by buying piles of clothes you don’t need is definitely not one of them. These cards often have high interest rates, and you can find yourself in a bad position in no time if left unchecked.
Then there’s the credit card. It’s a complicated little piece of plastic that can be really bad, or really good if you’re responsible. If you have a spending problem it’s your worst enemy. And sadly many South Africans find themselves needing to use a credit card to make it through the month. The high interest rate on these, should you not pay off all the debt within the first month or so, can leave you in the same unhealthy debt spiral as a store card, and the sooner you pay these debts off the better.
Time to talk about the not-so-uhealthy debt. That’s the debt that can be seen as an investment. Buying a home is generally considered to be a good move. The loan is paid over a long time, and the interest rates are low, so it’s geared towards affordability. A property is also a potential source of income for you.
Another "good" type of debt is a student loan. Investing in education is almost never a bad idea, and the more you can improve yourself, the higher your earning potential becomes, and the more wealth you can create in the long term.
However, even good debt can turn unhealthy if you can’t afford it, or neglect it. Never use debt to pay off other debts, as this can cause a debt spiral that is very difficult to get out of. If you’re struggling, turn to a financial advisor or debt counsellor for help. Working with a professional can help you get a handle on your finances, and they might even be able to help you renegotiate your debts into more manageable payments.
Do your future self a favour, and don’t buy anything you don’t need or can’t afford. Don’t use credit cards like free money. And for the love of financial freedom, destroy that store card. 🔥
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