The perils of debt

Hand holding several banknotes

Years ago when starting my company, I determined not to get into debt in that process. It wasn’t until later that I learned that I had picked the “bootstrap” method. True, the growth curve was slower than a fully funded start-up would have been, but things grew as current projects funded expansion.

Given that all new businesses are playing the odds of most of them failing in the first few years, I didn’t want to create a potential situation where the business was gone and all I had left was a pile of debt. I’ve seen people around me go through that and the effects can be devastating for a family.

Apparently I’m a minority. In 2017, American consumers hit an all-time high of more than $1 trillion in credit card debt! That’s scary! Total debt, including mortgages, auto loans and student loans is also at an all-time high.

Debt, while seeming to satisfy an apparent and immediate need, later denies us future financial freedom. Thousands of years ago, a wise man wrote, “The borrower is slave to the lender.” (Proverbs 22:7) That truth seems more relevant today than ever.

The lure of debt

The problem is that it has become so easy to get credit and go into debt—especially using credit cards. You can hardly walk into a store these days without being offered an immediate discount on your purchase if you apply for their credit card. That’s tempting, almost appearing wise. Paying by credit card has become a way of life. And credit card payments have become a fixed entry in our budgets.

But credit card debt and its perils are not limited to personal use. As business owners and entrepreneurs, we get sucked into the mindset that “you have to spend money to make money.” As a result, we rationalize putting that new computer, desk, or software package on the credit card. And before we know it, we’re working to pay off debt. We have unwittingly sold ourselves as a slave to our creditors.

Lack can be your friend

You’ve no doubt heard the saying, “Necessity is the mother of invention.” Many of us are successful in business today because we recognized a need and created a solution. So, let’s apply that saying to the matter of debt. Couldn’t we also argue that need or lack is the mother of creativity?

What I’m getting at here is that we can often find a way to avoid debt if we’re willing to solve our need in a unique and creative way. For example, many successful bloggers and podcasters started their business on a shoestring. Instead of going out and buying the latest equipment and software, they used what they had to get started and only purchased more expensive “professional” tools when the money was there.

But we look at their success and assume that we have to own the tools they now use in order to be as successful as they are. So we go into debt. But you can’t borrow your way to success.

Questions to ask before going into debt

Instead of just reaching for the credit card, here are some questions to ask before going into debt:

  • How crucial is this purchase — really? If we’re honest, is this item more of a want than a need? Or, what would be the consequences if I postponed this purchase until I could save up for it?

  • Can I find a creative alternative instead of making this purchase? How else can I meet this need?

  • To what extent will incurring this debt hurt my future ability to grow? We’re tempted to think about debt only in terms of whether we can afford the monthly payments. We forget that over the length of the payoff we may be paying for that item many times more than it’s worth.

  • Is my spouse in full agreement with me about this purchase? In marriage, one spouse is often wired very differently from the other and that’s a great thing. Because of this, we can offer each other a more balanced view when it comes to decision-making. In large purchase decisions, agree that you need to be in harmony about the purchase. This will not only save you money, but perhaps your marriage as well.

  • What does my business partner, my business coach or mentor advise? Again, getting the perspective of another individual can be invaluable. Their viewpoint or advice can provide other alternatives to debt and save us a lot of heartache.

How to get out of debt

If you’ve gotten yourself into debt—especially credit card debt, decide to free yourself from slavery to your debt as quickly as possible. One of the best ways to eliminate debt rapidly is by using a technique called the “Snowball.”

With the snowball approach, you pay off your smallest credit card (or other debt) as fast as possible. Then you take the amount of money you were using to pay off that debt and add it to the payment on your next smallest debt. This will accelerate that debt payoff. You keep doing this, paying off each successive debt faster and faster by “snowballing” or growing your payments.

Snowballing debt is an extremely effective way to pay off debt quickly. While you’re aggressively paying off debt, it’s vital that you refrain from incurring any new debt. Take the credit cards out of your wallet or purse. Then, once debt-free again, either cut up your credit cards or commit to paying them off each month.

You’ll be amazed how free you feel without debt! And just imagine the things you can do in your business if you have no debt!

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