There is such a thing a dumb debt; so-called because borrowing for such things is just downright dumb.
It boils down to needs and wants. If you want something but don’t need it then purchasing it with borrowed money is just plain dumb and I am not talking about borrowing for something for your business but rather items of a personal nature such as a new stereo, TV, couch, or whatever.
The reason why borrowing for these items is considered to be dumb debt is because they lose their value once they leave the store. Have you ever purchased a consumer product and found that you could sell it at a high price elsewhere? Rarely!
The interest payable on goods bought on credit adds to the cost of the item; this is called “dead money” because you get nothing tangible for it.
The interest payable on dumb debt may not be noticable in the short term but over a a life time this adds up t a huge amount. If someone spends an average of $500 per annum on dumb debt this adds up to $10,000 over a period of 20 years. This is a conservative figure, some people will be paying three or four times this.
One quote I heard years ago was, “Money makes you more of what you are.” This means that people will increase their borrowing in line with their income. As their income increases so does the stuff they accumulate with borrowed money.
For those people who have got into a bit of dumb debt it says a lot about their financial literacy.
Many people consider themselves financially competent if they have a good credit rating. Success for them is about how much money they can borrow.
A person with some degree of financial literacy will invest in assets which increase in value over time. This could be your home, the share market, mutual funds, your retirement fund, and other types of investments.
It is not how much is in your pay packet which counts it is what you do with it.
Many people may say that it is hard to save money due to the cost of living crisis. That is a fair comment. You may have no control over rising costs but you do have a choice in what to do with your discretionary income.
It is all about prioritizing your spending. I know one person who has 10 cats and is struggling financially. She has spent $1,000 on a vet bill for one of her cats. If that is not stupidity then I don’t know what is. What someone prioritizes their spending is what they value most of all.
Most items bought can be converted back into cash but problem is that the money received on such items is less than what was originally paid for them; that it why borrowing for such items is called “Dumb Debt”.
It is important not to get taken in by the flashy advertising by loan sharks. They are very enticing; so much so that you can easily fall for their smooth talk. Advertisers who are making their pitch toward you will try to convince you that they are doing you a favor but the truth is they want something from you. Many of their slogans are simply not true; one I saw was “Helping you to get ahead.” This couldn’t be further from the truth for the individual who fell for this.
Interest is dead money, it is money you are spending but are not receiving anything tangible in return. Always keep in mind that anything which costs you money is a liability. Something which is a hindrance to financial success. I am not talking about your living costs here but rather what commitments you take on. You may not have any control over your rates or rent payments but other things you do have a choice in and it is these choices which can make or break you.
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This article is of the opinion of the writer and may not necessarily apply to your personal situation. You may use the article as content for your ebook or website.
