Smart or Dumb Debt

BOPA11FEB09A04_1There are two types of debt. Smart debt and dumb debt. Smart debt is when you borrow for something which generally goes up in value and dumb debt is when you borrow for something which goes down in value.

Many advertisements and brochures that arrive in the mail for you and your young adults to encourage taking on “dumb debt” by offering credit. Advertisers use your emotions to convey when you get that new stereo or go on a fantastic “pay later” holiday you will feel great and that you won’t have a care in the world.

However, nothing could be further from the truth because debt can cause you to worry, have health and relationship problems especially when unexpected “life” happens such as illness or job loss. Having debt can make you become a modern day slave. A slave to your lender.Consumer debt should be conveyed in the following way. When you take it on you will feel on a high, it will feel like you are soaking in a hot pool. Then suddenly you realize that the hot pool that felt so great to begin suddenly turns into a swamp full of debt leeches who are sucking the financial life blood out of you and your family. Unless you take drastic action to get rid of those blood suckers once and for all, you will be stuck with them your whole adult life. These debt leeches also seem to have the ability to crawl from one generation to another and latch on to your children, or grandchildren. A conscious decision needs to be made to stay away from dumb debt and not be tempted by enticing pay later advertising.

During my times of doing counselling, life coaching and offering budget advice I have heard so many heart-breaking stories of how people in all socio economic brackets have become a slave to their lender. They have been sucked into taking on “dumb debt” and then find themselves unable to make payments or put food on the table.

I liken budget advice to being the ambulance at the bottom of the cliff – it’s great and needed. However, its much better for everyone to become financially intelligent so we don’t need the ambulance in the first place?
The moral of the story – set a good example for your children and avoid “dumb debt”.