The_Emotional_Side_Of_Short_Term_Debt

The Emotional Side Of Short Term Debt

If FNB promises that I will reach all my goals when I take out a personal loan and ABSA promises to set my dreams in motion with their money and Capitec’s website greets me with a list of Benefits Of Credit,  how can I resent myself for making the worst financial decisions?

I guess this is a topic we can all relate to. We live in a society where everywhere you look there is at least one advertisement that is trying to persuade you into taking out some kind of short term debt (with VERY high-interest rates).

How can we not fall for the market’s traps? They make it sound so innocent!

In Seth Godin’s book (This Is Marketing) he tells about the importance of making an ad personal. He says that marketers make you get so emotionally involved, that your focus is totally shifted to getting that feeling and experience they promise. So much so that the vehicle (whatever they are advertising) becomes irrelevant and we just want to get to that emotional place of safety…

Unfortunately, emotions fade but the results of a bad decision will follow you for quite some time. In this case in the form of monthly installments.

The_Emotional_Side_Of_Short_Term_DebtMy story

We were engaged and got married! Yeah! (Risk Alert!)

Okay, so of course we NEEDED (or wanted?) a Pinterest wedding. That’s where I got all my inspiration from, how else will the perfect day be perfect?

And what is the use of spending so much money if you don’t have THE BEST photographer to capture the day? I don’t think that the photographer’s price was as high as our expectations. But, one thing leads to another and before we knew it we went over budget and spent more we planned to. This allowed us to start our journey as a married couple, together and in debt. I don’t resent the beautiful wedding we had! But I wouldn’t encourage anyone to have a wedding you can’t afford.

Think about what you can do with the money before spending it all on your wedding. Consider buying a car or put a down payment on the house or start an emergency fund, the investment opportunities are endless.  I think personally our biggest problem was we only focused on the wedding in that time period and forgot that life goes on afterward.

It would have been of so much help if we had a five-year plan, and in that plan, the wedding was just one of the events we needed to budget for. If we had looked at the bigger picture we would have made better financial decisions.

Cyber Monday had a special on a 27-inch iMac (Risk Alert!)

My husband is a lover of all things computers, he adores them inside and out. He had a MacBook and it got stolen, so we were looking for a replacement. The insurance did pay out enough to replace the MacBook. Then our human nature got involved and we decided we wanted an upgrade. We were shopping for a new computer, and Black Friday specials greeted us everywhere. We were slower than the crowd and missed out on the Black Friday deals.

But we got the perfect pick on Cyber Monday.

The smaller MacBooks were not on special offer, but we save R5000 by buying the bigger, more expensive one. And we used short term debt to fund it!

I guess the main thing I have learned from this experience is that it doesn’t count as a special price if you can’t buy it cash because the interest you pay will eat up all the money you saved from buying the special. It would have been worth it to wait until we had enough cash to buy the iMac.

We bought our first home (Risk Alert!)

My husband and I bought a two-room apartment in Potchefstroom. Then we had to move, so we thought that we needed to do some repairs to be able to rent out our home.  

Yes, we did plan to invest in real estate, but we underestimated our financial position at that current time. We took out a short loan to fix it up and agreed that the loan makes it possible to have rent out the home as an investment.

Although, what we could have done, is to first listen to the comments of our clients regarding the apartment before renovating it. We thought we needed to make some changes otherwise no one would rent from us. In the end, we got it rented out a client who didn’t even see the place beforehand, the online the pictures on the rental site was enough to seal the deal.

Maybe the client would have been happy with the place just as it was before we renovated it. And maybe we made unnecessary debt…

Check out my post about A Personal Financial Plan to help you plan for your financial future.

Conclusion

Looking back I am able to identify high risk, decision-making times in my life where I was most prone to take out short term debt.

After a year of paying back my loan with my precious income and (according to Dave Ramsey’s book The Total Money Makeover) my biggest asset :-(…

I have felt the pain of high-interest rates and bad financial decisions.

I can not count the times my husband and I have tried to validate our reasons for taking out a personal loan and a revolving loan. Although we know now it wasn’t the way to go.

My conclusion is that short term debt must be your last, last, last option. It is not worth the money, time and emotional effort that accompanies it. There is a way to survive without short term debt. Be determined and be goal-oriented and you will succeed!

And good luck with taking the road less traveled…

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