About Debt

What is Debt?
Everybody understands the concept of debt. We need to buy something – so we borrow money from someone and all of a sudden we are in debt. When the money is repaid you will be debt free. It does not have to be money – it can by anything. When you borrow a lawnmower from a friend you are basically in debt to him until the lawnmower has been returned.

If you don’t give it back you will always be in debt and sooner or later will have to come to an arrangement of how to recompense your friend for that lawnmower if it has been destroyed.

Being in debt is not good.

There are 2 reasons for this:

  1. You will have to pay money or something in value to the lender if you are in debt. If you borrow money you have to pay interest. If you borrow a truck you may have to return it with a full petrol tank. Some debts cost nothing. If you borrow your neighbour’s clippers to cut the hedge and then return them in good condition there is generally no cost to that debt. Even if there’s no cost, it has been a debt until the debt has been repaid or the item returned.

  2. Beholden to the lender. The "Old Book" couldn’t have put it in a better way – “A borrower is a servant to the lender.” No one likes being called a servant, but if you borrow money from someone you are a “servant” to that person. If not a servant, you are certainly under obligation to that person.

If you borrow from a professional lender you will have to pay back the amount you borrowed, plus interest. If you don’t pay during the term of the loan you will have to pay instalments reducing the amount borrowed. The instalments will include an interest portion. If you are late with the payments, the lender will add on penalties or late charges. This whole scenario can be harrowing to the borrower because at times he/she ends up paying back considerably more than the original amount borrowed.

If your credit card paid for an overseas trip, the debt may take some time to repay in full because interest is being added on daily and you can end up paying a lot more than the original cost of the overseas trip. The sad part about it is you are paying for something long after the benefits (of the trip) have gone.

The History of Debt
Debt has been around for thousands of years. As long as there have been goods or services or property, there has been debt. Debt is a burden and being in debt is a form of financial bondage.

In the old days debt was physically part of someone’s bondage and if that person was unable to repay the debt they became the property of the lender.

The Italians were probably the first people who set down the guidelines for our modern system of lending. They used a form of bill of exchange which was the confirmation of a loan in various currencies and the beauty of it was that if that bill was stolen it could never be cashed, except by the legitimate party, who was part of the transaction. Therefore, thieves were out of luck and the bill of exchange became an accepted format for doing currency deals amongst traders.