Debt management

by Admin
Updated: August 2, 2018

Effective debt management skills are essential for success even when you have no net debt

Many people have an irrational fear of all kinds of debt. In extreme cases, you can’t even do something nice for such a person because they don’t want to owe you. Avoiding debt is false and self-defeating. Being comfortable trading and properly managing your obligations is critical for success in business as well as personal finance.

Simply using a credit card incurs debt. It’s a great service and credit cards have many advantages over debit cards and cash.

Not knowing how to manage money properly is being lazy.

Deferring to a so-called expert is also dangerous.

Learning how to do it yourself is the only way.

Plan ahead

It’s critical to keep track of all outgoings and include debt repayments in bank cash flow projections (treat credit card balances like debit transactions happening in the future).

The only difference between spending actual hard cash and using credit is that it’s possible to spend more than you have using debt financing. Stopping because you’ve run out of money is a lame excuse for not planning ahead whichever method you’re using.

Borrow more than you need

The best time to borrow is when you don’t need it.

Provided the fees & interest are not too high, I recommend borrowing as an ongoing strategy in order to maintain a strong cash position. This will protect you from any temporary downturn in fortune.

Always borrow more than you think you need. At least 50% more. The best laid plans can take longer than expected.

Consider this: If you were ever to run out of money, even the process of applying for something (anything) becomes challenging.

If you have only the clothes you are wearing, you are a homeless person. But if you have cash, you have the opportunity to save yourself, even though you may owe far more.

No matter how much debt you have, if you have substantially more than enough cash to pay your bills for the next few months then you have a degree of financial freedom.

That having been said, never borrow from usurers or gangsters!

Manage your debt yourself

It’s essential to take charge of your own situation and not give in to weakness. If your cash flow is suffering, talk to your creditors - you’ll have more options than you realize. Never just don’t pay.

Better than seeking help, or even advice, find out how others successfully manage(d) debt and put together your own strategy.

Don’t get emotional about it

Debt is managed with information, calculation and careful planning. How you feel about debt has no effect on it.

If you feel your debt is too much, get over yourself. You are not the first, not the only one and not the most in debt.

You can borrow your way out of debt

Businesses often borrow to fund themselves through phases of development into profitable entities. This is considered normal.

A similar principle can apply to personal finance except that it is not generally considered normal.

A few years ago, a lot of companies were gong bust and jobs were being lost. Some smart people I know took out loans that allowed them to continue paying their bills - including the loan repayments - for 10-12 months which gave them time to find new employment.

You can borrow your way to wealth

Most wealthy people do this as a matter of course. Typically, taking out mortgages (big debts) to buy real estate is a winning strategy.

More info

“3 Situations Where Debt Isn’t All Bad” at nationaldebtrelief.com.

“Not All Debt Is Bad” at nerdwallet.com.

“Good Debt Vs Bad Debt” at investopedia.com.

Internal links

Cash flow Understanding debt Go to Articles
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