The Stuff website had an article recently which named people who borrow money to maintain their lifestyle “Fake Rich”.
I think that that these people are highly likely to be smart, kind, creative and loving, as well as carrying a level of debt that they never intended to.
So how did they end up there? Why don’t they just spend less, and pay off their debt? From what I’ve seen, there are five main reasons they don’t follow this deceptively simple advice. I’m going to cover two of those reasons in this post.
It starts with how easy it is to get credit:
- As soon as you’re 18, a company or bank will offer to loan you money. We used to have overdrafts, credit cards, personal loans and HP. Now we also have revolving credit mortgages, pay day loans, and peer-to-peer lending. And student loans.
- In the last couple of years, there’s been an explosion in ‘payment solutions’ in both online and bricks-and-mortar stores, offering the chance take the goods now, and pay it off over four weeks. They don’t even check if you can afford the repayments.
- Because credit is so easy to get, and many other people get it, we get a warped idea of what we “should” be able to afford, given our incomes and backgrounds
Now add to the mix that our brains go a bit crazy with credit:
- Getting credit feels bloody brilliant, at first. It either solves a problem, or means you can buy something fabulous.
- Spending borrowed money doesn’t feel like we’re spending real money, so we typically spend more than we would if we’d had to earn and save that same amount of money.
- Responsible institutions now clearly set out the real cost of your loan, plus the total amount you will repay. Our brains will take in the information, but working out the implications is hard, so most of us bypass that step. The lender is never going to say, “You can’t really afford what you want to buy at the present time”. All they ever will say is “Congratulations! Your loan is approved!”
- When people feel bad about their debt, going shopping can temporarily make them feel better. Then they feel bad about having even more debt, so they go shopping again…
I’ll go into the other three reasons in my next post; in the meantime if you’d like some non-judgemental help to get out of debt, without feeling deprived while you do so, scroll down and schedule a free call.