Debt and Family

Sensible Borrowing - Silly Borrowing
There is a world of difference between a home mortgage and a revolving credit card balance. Both are debts for which the borrower is responsible, but the first debt of the home mortgage is a sound debt, while the latter debt of the credit card is a stupid debt.

(a) Sensible Borrowing

" Sensible borrowing involves a level of limited risk ..."

Sensible borrowing involves a level of limited risk for the lender, as well as the borrower, so both have comfort in the transaction.

Sensible borrowing looks like this:

  1. Secured - The debt is secured. The lender holds a charge or security for the amount of the loan - this is known as collateral.
  2. Safety - The borrower has a safety valve: The borrower has other alternatives in case things run sour and he/she needs to get out of the debt obligation. 
  3.  Growth  - The loan is for something that has reasonable life expectancy (so that there is a reasonable chance of increase in value) as opposed to something that will go down the drain before the bill arrives (i.e decreases in value).
  4. Fair Interest - The interest rate charged is reasonable.

(b) Silly Borrowing

" Silly borrowing is the type of debt that you agree to when you are not thinking straight ..."

Silly borrowing is the type of debt that you agree to (often on impulse) when you are not thinking straight. It is at the time when you can only see the item you are purchasing and the pleasure it will give, but you don’t weigh up the cost or consequences of purchasing that item.

Credit cards are by far the worst. Almost everyone, including high school children can easily get credit cards these days. An example is when you buy the latest DVD player, or computer, because it also comes with a free scanner or some other incentive. The item is also on sale, so all you can see is the benefit of completing the purchase. You find yourself totally engrossed with this fabulous new buy and the last thing on your mind is how you are going to pay for it.

These types of purchases can easily be termed “silly and stupid borrowing” and they need to be avoided at all times.

This is an example of a small item, but sometimes people buy large purchases and they take out loans for periods of 3 – 5 years.

Spending money you don’t have yet, to pay for things that you won't have any more in the future, is anything but intelligent. It is not sound borrowing to raise cash for items that will depreciate very quickly, that will probably not work, or that won't be needed after two or three years. If this happens and you have taken out a loan for a 5-year period, you will end up paying for a debt that has been incurred for things you no longer use or no longer have.

Even though this is stupid borrowing, it is exactly what many people around the country do every day of every month of every year.

Debt has the Power to Wreck Marriages

It is common knowledge that financial problems are the single main cause of fights and arguments within families. It is responsible for break-ups, fights and tensions, with one party accusing the other of bad management or the accruing of debt.

Marriage agencies will verify that there is little doubt money problems can be a source of erosion of marriages and relationships. To make matters worse, spouses gravitate to extremes in their arguments.

Olivia Mellan, the author of “Overcoming Overspending” and “Money Harmony” had this to say, “Whoever is the effective spender is going to be angry, unsupportive, hostile and maybe threaten divorce.” She was referring to the household’s responsible money user. It creates marital discord. “The tension comes out in various ways”, she adds. “It can be anything from underlying chronic tension to withholding sex, to screaming fights, to ultimatums.”

The way to try and deal with these situations is for the couple and other family members to sit down and calmly discuss their money issues. Once everyone knows the situation they can set out a plan to deal with it. This means the first step is to admit there is a problem and that one or the other causes the problem with their chronic overspending.

They say that overspenders shouldn't shop alone. They should stay out of the shops where they tend to over spend.

The family needs to take back control. They need to control their spending and realise they do have choices and they don’t have to be slaves to debt. The family should sit down and talk about the problem, and then commit themselves, deal with it and overcome it.

Being debt free will bring a whole new, refreshing breeze into any family.