Red State of Mind: Getting out of a debtor’s mindset

Getting into debt is one of the easiest things in the world for someone living in contemporary America. Every time you go shopping there will be somebody trying to get you signed up for some sort of premium rewards credit card, every time you go to a bank they will have ads and pamphlets for mortgages and car loans, and even students are having a harder and harder time enrolling in college without enlisting some sort of student loan. Debt has become an inescapable facet of life, and we’re all the ones paying the prices. It’s important to know when going into debt is a good idea, and when going into debt is going to turn into a waste of time and money.

Fixing debt problems isn’t just a matter of changing spending habits, it’s a matter of changing how you view your money.  We’ve all heard the saying “a bird in the hand is worth two in the bush.” That means that money in your possession now is worth more than the prospect of having money in the future.  In financial terms, we consider this the time value of money. This is the impetus behind loans, credit cards, and every other money borrowing situation.  The problem lies in the fact that the lenders know this concept as well, bringing about interest rates and fees. It’s important to understand that loans aren’t a one for one trade.  You must focus on paying back those loans as quickly as you can.  A bird in your hand might seems great, but understand that eventually you’ll be putting two back in the bush.  Know both how much you owe at all times and try to keep from thinking of that money from a loan as actual “earned” money—keep your debt and your actual finances separate in your mind at all times.

Change the way you approach your relationship with your debt. It isn’t a source of money that you’re just borrowing, it’s a bank or loan officer making an investment in you, and expecting a return on their investment. If you can’t deliver, don’t take the money. It’s just as important to consider what taking on debt will accomplish, and how likely that goal is to provide a solid return. If your chances of actually turning a profit out of that debt, interest rates included, are relatively slim, it’s better to wait until you can finance the project yourself.  Ideally, debt would only be used on projects that are all but guaranteed to turn a profit, whether it is for your business or for your education.

The most important thing to consider when taking on debt is not seeing it as a means of getting what you want, but instead looking at it as a means of someone getting something out of you, someone getting a long-term investment in your life.  Because depending on the size of the loan you take on, you may be keeping them happy for years, if not decades.

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