“0% APR for XX months!!!”
“Pay only $XXX for 72 months!!!”
“Open a store credit card and get XX% off every purchase!!!”
It’s so freaking tempting! We can have our cake today but pay for it tomorrow when we can really afford it.
Most of us are aware of the tradeoffs of taking on financial debt. Using tomorrow’s dollars to pay for today’s enjoyment requires a potentially dangerous assumption though…that tomorrow will play out exactly as we expect it to today. That our jobs are secure…that our incomes will remain stable or even increase…that other expenses will decrease as we expect them to…that we stay healthy in the future. But what if we don’t…
Tomorrow is by no means guaranteed and neither are the plans that we build for it in our minds. Debt requires a balance with the uncertainties of tomorrow.
Why? Debt has a negative compounding effect. For one, interest is being paid to someone else over time. So that $20,000 car purchase that we agreed upon actually becomes a $23,000 purchase after it’s all said and done. Secondly, few people want to or choose to carry a balance on their credit cards when they first start out, but one small debt stacks on top of another small debt which again stacks on top of another until the point that we can no longer afford to pay them off each month. Forcing us to carry a balance one month to the next, and slowly and unknowingly the balance begins to grow to unmanageable levels. Putting strains on our monthly cashflows and, even, our personal relationships. It’s a slippery slope…and the uncertainties of tomorrow only serve to accelerate that potential slide.
Clearly, you know my general feelings towards debt at this point…but it’s not all bad. It can and does occasionally serve a good purpose, but only when it’s used carefully and strategically, for instance, to buy a home for our families…or to pay for an education that will increase our future earnings potential…or to start or buy a business. All of these debts have a common theme though, they’re used to “buy” something that will hopefully hold or increase in value themselves or increase our ability to earn more in the future, which helps provide a balance to the potential dangers that the uncertainties of tomorrow could bring.
Debt can be a springboard to a better future if used cautiously…or it can be a roadblock to it if used unmindfully.