Disclosure: Some of the links below are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase .
Black Friday – a Debt fueled Buying binge laying the seeds of the next financial crisis OR an awesome way to get neat stuff cheap?
Billionaire investor Stan Druckenmiller says the next financial crisis will be worse than the last due to soaring levels of debt.
“We have this massive debt problem,” Druckenmiller said an interview with Kiril Sokoloff, chairman of 13D Global Strategy & Research. “We tripled down on what caused the crisis. And we tripled down on it globally.”
(Bloomberg LP)
Druckenmiller joins a growing list of Wall Street financiers and money managers who have predicted debt will trigger a crisis. Citadel’s Ken Griffin earlier this week cautioned that a debt-fueled buying binge is laying the seeds for the next economic downturn. DoubleLine Capital’s Jeffrey Gundlach said in June that the soaring U.S. budget deficit at a time of rising rates may be setting the stage for fiscal trouble.
A debt fueled buying binge
While the suggestion that the UK is in the midst of a mounting debt crisis may be disputed by some, there’s no doubt that this remains a growing concern. After all, household debt levels in Britain have increased by 7% during the last five years, and this could rise further amid stagnant wages and disproportionately high rates of inflation. It was also quoted that one third of working Brits have less than 100 pounds in savings. (Mortgage free – Season 1, episode 5).
If you’re a follower of this blog, you’ll know that I tried and failed to clear my debts many times before finally succeeding. I started at around age 20. Poor financial upbringing and zero financial intelligence. All this whilst training to become an accountant and finishing a BTEC in Business and Finance at school!
I was sort of stuck in a cycle where I’d splurge on credit, then feel really guilty, then suffer the consequences of being broke and then attack my debt in a bid to pay some off when I found myself with a little money to spare again. I’d make promises to myself that it was OK to buy today because there was that…(tax refund / bonus / whatever) due at the end of the month and I could just use that to pay the card off. Funny though – by the time the refund, raise, bonus came through I seemed to have “allocated” it three times over!
Usually though, I would make some progress and starting to feel better about my finances, but then I’d go straight back to square one and give in to the temptation to use my credit cards for something materialistic and generally totally meaningless.
I was going through an emotional battle with myself where part of me wanted to get rid of the debt for good but the other part just wanted to get on with my life and enjoy myself.
Of course, paying off some debt is definitely better than none, but it turns out I had a problem with this halfhearted mentality. In hindsight, I’d already failed before I’d begun.
The cycle of debt continued as long as I allowed myself to settle at the thought of just some of my debt getting paid off.
Why did I fail? Life took over. The kids needed new coats and shoes for school or the washer crapped out. My motivation levels would soar and then plummet with each “needed” thing when there was so much stuff I “wanted”.
It was only when I really realized what it meant to me to get rid of my debt completely, that I was actually able to achieve debt freedom.
If you’re in debt right now, I want to encourage you not to just settle for clearing some of your debt, so that you can have more breathing space (or room on your credit card for emergencies). I want you to aim high and commit to getting your debts paid off in full!
Being debt free allows you to follow your passion
It sounds corny but it’s true! This is my favorite reason for becoming debt free – Not having any debt to contend with allows you to make better choices in your life and may even help you do more of what you love!
Whether you want to quit your job, go on the trip of a lifetime, volunteer in third world countries or live off the grid, being debt free will give you a much better chance of doing these things.
You can keep your hard-earned money for yourself
Every time you borrow money on credit, you’re having to pay back more than you borrowed in the first place thanks to interest. Chances are that “thing” will be old, worn out or obsolete BEFORE you’ve finished making the payments on it.
Now for a very painful exercise – Visualize some of your older purchases and the price tag on the shelf. Now, how much do you think those purchases have actually cost you when you add on the interest? Double? Triple?
It certainly does sting more than a little when you really acknowledge how much money you’re giving to creditors in the way of interest. Past purchases that you might regret funding through credit can be hard to forget when you’re still paying them off years later…
You don’t know what’s around the corner
Look at me and my story. Let’s face it, anything could happen in the future. You could lose your job like I did, or get really sick so that you can’t work, or have an accident that renders you incapacitated. Your house could burn down or you could even be a victim of a natural disaster!
How would any of these things affect you if you have debt? Even with the best insurance, would you be able to cope financially?
You can plan for a more secure financial future
When you have debt, other financial goals often get put on the back-burner. I have been in debt so heavily that I had no spare money to save for retirement or even for an emergency fund. This had to change for my family and so, it has.
It’s only recently that I’ve started putting money aside for retirement (and I’m already 49 years old). Having lots of debt has delayed my plans for a secure financial future. All I can do now is try my best to make up for lost time.
Don’t let this happen to you! Even if your debt is at a manageable level now, it’s still money that you’re having to pay out every month that could be better spent elsewhere. To give you a better future!
I lived in denial about my debt for many years and when I look back, I can see now that there were several red flags or warning signs that my debt was totally out of control. I didn’t see the signs at the time.
The first red flag that I can think of was how I felt a rush of happiness at the thought of buying something new – it didn’t matter to me at all that I’d be using my credit card to do so.
I remember several occasions when I’d be at work and a friend would suggest a night out at the end of the week. My first reaction would be to mentally scan my wardrobe for something to wear. Usually, that process would end up in a desire to purchase something new and then after work I’d stop at a nearby clothes store on the way home to get something, just for the occasion.
Possibly the most worrying sign that my debt was headed straight for the disaster zone was that I didn’t give it much thought at all. It was always “there”, appearing in the form of statements through the post every month but for a long time, I ignored it completely. I set up minimum payments by direct debit and just put it to the back of my mind. To be honest, it didn’t really register to me for ages that I would actually have to pay the debt off in full!
It’s not just frivolous spending that can cause debt, it can occur for a variety of reasons, such as a loss of job or financial emergency. Whatever the reason though, the earlier a debt problem can be recognized, the more chance a person has of getting their finances under control quickly so they can get back to living their lives.
Confronting debt is the first step to take
I didn’t know the extent of my own debt properly until I was forced to deal with it. I was too scared to add up the amount I owed until I had no choice anyway. Facing up to debt is a scary prospect.
But like all things scary, the fear of debt often lies in the unknown. Once confronted, debt can be managed and the fear will subside once you know what you’re dealing with.
Finally…
These are just a few reasons why it’s better to get rid of your debt once and for all. If you’re trying to tackle your debt, don’t stop working at it. Whether it takes you one, two or five years to clear your debt, don’t allow yourself to settle for anything other than becoming debt free.
Have you experienced any red flags when it comes to your own finances?
XO
Anna
Leave a Reply