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Why Does Bad Debt Happen to Good People?

Bad debt doesn’t happen all at once. It starts with a swipe, and ends with your money (and your future money) disappearing into a dark pit.

But, it’s not all doom and gloom! The fact that you’re reading this means you’re already on the path to being financially healthy, so don’t lose hope. Part of avoiding or solving the problem is recognising it. So let’s get into it…

Bad debt is debt incurred to buy something that loses value over time, or doesn’t hold any value to begin with.

Maybe an emergency happened, and in the absence of an emergency fund you needed to reach for your credit card. Or maybe you were conned into an “amazing investment opportunity” that turned out to be fake. It could even be a series of small purchases that you thought you had under control, but turned out to be worse once the interest accumulated.

A debt death spiral looks like this:

  1. Spend more than you earn. Go into debt trying to bridge the gap.
  2. Debt repayments and interest gets added to your monthly, so you’re spending even more that you earn.
  3. Watch in horror as the gap between your earning and spending grows, leading to more debt.
  4. Which leads to more spending.
  5. Which leads to more debt.

If you’re feeding the debt death spiral to pay for a lifestyle you wouldn’t be able to afford without debt, you’re essentially making sure that you stay financially enslaved. You’ll be trapped by repayments, preventing you from achieving any meaningful money goals you might have. Not to mention that you’ll be unprepared for emergencies or any big life events that might pop up.

So be responsible with the kind of debt you sign up for. Debt can be a good idea if you use it to buy an asset (like property), start a business or further your education.

But this is important: Pay off bad debts before you take any next steps towards financial freedom.

If you’re struggling, or unsure about how to get out of bad debt, chat to a financial advisor. They can help you to set realistic financial goals, and point you in the direction of help if you find yourself in a debt spiral. 

No problem is so big that it can’t be solved through self-discipline and seeking the right kind of help.




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