Getting into debt is becoming easier, don’t fall into that trap

By Sabrina Almeida

A recent Manulife survey indicating that 15% of mortgage holders will be in trouble if interest rates rise is not surprising. I believe that is just the tip of the iceberg. The number of individuals who are stretching their finances beyond break point is growing at a fast pace. Even South Asians, who were typically known to be financially savvy, are now putting aside all caution and over reaching. What is even more alarming is that the rising number of bankruptcies among relatives and friends don’t strike any warning bells.  So what is it that is causing so many of us to overextend?Debt

The desire to live life ‘king-size’

One gentleman told me that he always wanted to ‘live life king-size’. And that is becoming a mantra for many South Asians these days, even if they can’t afford it.

While the competitive spirit might work to one’s advantage in school, sports or work when it comes to acquiring possessions it has often proved to be the biggest downfall. The desire to be bigger and better is causing many to take unnecessary risks. As a result what seems like affluence and prosperity is often borrowed money that has very little chance of being repaid. Unfortunately it doesn’t matter. Bragging rights, however short-lived, seem to take precedence over common sense and financial security.

I’ve come across more than a dozen people who dip into their line of credit as though it were a bottomless pit. For frivolous wants that too, not needs… like doing up a backyard, renovating the basement or going on expensive vacations. Their short-sightedness is alarming as they live for today and hope tomorrow will take care of itself.

You don’t need money to buy anything

From furniture to clothing, home renovations or your car, commercials will tell you that you don’t have to pay for anything right now. People are attracted by the fact that they can have it right away and pay later, with most behaving as though it’s free. As a result they are accumulating large amounts of personal debt which is virtually impossible to repay. In fact a study at the beginning of the year put Canada’s household debt second only to Greece. Lower interest rates, which were intended to boost the economy, are certainly not helping as it encourages people to mistakenly believe they can afford more.

A financial advisor I interviewed couple of years back said the best way to discipline yourself is to use cash. Paying with money (rather than a credit card) puts things dramatically into perspective as you realise how much you giving out and more importantly what you have left and when it is over. It actually hurts, just try it.

Mastering the system

While many of us have sleepless nights about the mounting bills and dream of a debt-free future, there are others who don’t think twice about adding more to the stack. By paying the minimums to keep collection agencies off their backs, they feel like they’ve conquered the system, and may be they have.

I’ve met more than one individual who has been doing this for years and it never seems to catch up with them, as we fear. Their entire lives are being financed by credit. What’s more they have no intention of ever paying what they owe and consider the rest of us to be morons for doing so. The more they do it, the bolder they get. Juggling the minimum balances has become a way of life, one that they do with ease. Doesn’t it take more time and effort to do that than pay the bills? Maybe it’s just me!

There’s always someone willing to lend you more

Judging from the numerous road signs and commercials offering loans for people with poor credit ratings, I’d say options are always available. Whether it’s buying a house or a car there are establishments (and individuals) willing to finance your desires. The interest rates might be criminal but don’t stand in the way of people who are more focussed on getting what they want rather than how they are going to pay for it.

One family I know was willing to incur second and third mortgages, to finance their investments. They purchased a string of properties which they expected to rent out and pay the owings. The ‘what if’ never occurred to them.

So do we blame the system, circumstances or our own lack of judgement? The tendency of course is to push the blame around. But as we look around at rising stress levels on must eventually admit that much of it is unnecessary, caused by avarice and the desire to be better than someone else. In the end you might avoid paying for it with money but it will certainly take a toll on your health, emotional well-being, even relationships. And what are we teaching our children…that it’s okay to live in debt!

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