How indebted am I?

Donna Willan Money cents

How indebted am I, why do we have debt and what should I do about it? I have just re-watched the 100 Second Tip on ‘Good Debt, Bad Debt’ (watch the video below), where the JustOneLap team make a clear distinction, reminding us that a home loan is cheap debt and therefore not all bad. Sadly I think that is probably the only ‘good debt’.

So what debt do I have? Is it ‘good’ or ‘bad’ debt? What can I do about it? And what should I do in the future to avoid bad debt?

I’m not doing too badly this time: I have no store cards and no overdraft, and I paid cash for my car (I took money out of my bond four years back rather than taking a car repayment option, which is much more expensive, and ‘bad debt’). But, I do have a big limit on my credit card – for emergencies – which is risky because it’s so easy to use and escalates so fast!!!

I always try to pay off my credit card at the beginning of every month, and yet often end the month with some debt. Not much, but it’s there. So how can I get that credit card to a zero balance at the end of every month?

I know the sad answer – I need to ensure I am only buying what we need and have budgeted for, and not the unnecessary wants. Look at that, we are at this discussion again (my last few columns all seem to come back to unnecessary wants and purchasing). I am not suggesting we have no fun or live like paupers, so I do budget “fun money”, but beyond that if I don’t have the money and it’s not in the budget then I can’t have it.

This month I had to use my credit card to pay for a two-week plumbing disaster. There was nothing I could do, I had to fix it and pay for it – and I was fortunate to be able to pay from my credit card, which I can slowly pay off. But if it’s only a “want” then I will not go into debt over it, my credit card is not to cover “wants”. This is easier to do if I am using actual cash, it is easier to monitor the money in my wallet than to remember to check credit card slips – which run a month behind anyway!

In order to move into the future avoiding all bad debt, including credit card debt, my rule is going to be: never go into debt over a want. If I don’t have the cash I can’t have it!

In my next column I am going to analyse my personal balance sheet – hmmm I wonder what I am really worth?


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