How debt is slowing you down
We live in a world where it’s normal to have debt, from credit cards to mortgages, we all have something that is draining us of our money. I will not even get into the topic of college debt that I honestly find ridiculous. We are struggling with paying off what we own from the very first paychecks. This is our normality, but should we treat it like that?
I lived in a home that was destroyed by my father’s debt, we even lost our house to the bank, so I know first hand what it means to live under the pressure of not being able to pay back your loans. Yet even in this case, I did have credit card debt and I do have a mortgage becasuse there was no other way for me to afford an apartment. So here I stand, at 31, looking at a payment that I have to make for another 10 years, for a small apartment.
As I previously mentioned I am no fan of debt, but when the situation called for it, I did borrow the money, but what I also did, was paying it off earlier. Just half of a year after I managed to pay off my first loan, I saw an apartment that I loved so I decided to take 2 more loans, one to be able to have money for the down payment and one for the apartment itself. One year after, I closed the first loan and started to pay in advance for the second one. It was not fun when I received some unexpected money that I gave back to the bank, yet I managed to reduce the commissions by a huge amount and in the end I could say that I was happy with the result.
I know my relationship with money is not a great one, or better said my relation with debt is not great. Most of my friends have 2 loans and a credit card, they somehow manage to work with them and not feel pressured by this. I talked to a friend that made a lifestyle out of borrowing money and she said that she much rather enjoy life now and that she will pay it off eventually. She considered it fair for the bank to have a huge slice of her paychecks for 30 years and she preferred it like this. The same situation would have driven me crazy.
As I grow older I see most of my colleagues doing the same, many of them having kids and 2–3 loans, and just to be clear, those are not because they cannot afford a decent living, it is because they want to live about their means. Fancy second-hand cars, apartments with custom furniture, some nice vacations, a new phone every year, shopping and so on. We are living in a world where consumerism is the star and we all love to spend what we don’t have. On the day you cash your paycheck you are left with almost nothing, therefore you dig deeper and deeper in loans.
It’s normal to want more, especially in an era where everyone exposes their well being on social media, but it is not OK to compromise your future for it. In recent years, I made a passion for designer items, but I know that I cannot spend the money I do not have, no matter how much I would love to have a Chanel bag. Also, it would be foolish of me to spend 4k on something that is not bringing me any value, while paying interest rates at the bank.
For me, the best approach always was to pay the debt first, reduce the amount spent on interest rates, and only after I will be debt-free I will start looking at buying a new car or getting a bigger house. It’s very possible for me to need another loan to get a house, but I will have the same plan of attack in order to make sure my money is going in the right direction.
So if you are planning to buy something or spend some money that you don’t have just because you know you can pay it off later, do some basic math and see how much that item will cost in the end. Just to give you an example, my apartment was 76000 euros, I paid 16% down payment and the rest (around 64 000) in the form of a loan. I opted for the 15 years period and if I would have stuck to the initial plan, I would have paid around 116 000 euro with an interest rate of 5.5% per year. This being more of a mortgage than a regular loan, has a smaller interest rate, for other types of loans, interest rates start from 10% and can go as high as 25% for credit cards.
Keep this in mind when you prepare to spend the money that you do not have and think that it’s easier to just pay it back later in smaller chunks. The biggest slice of the pie will always go to the man with the gold.