Dealing With Debt
Debt. The overbearing cloud of fiscal overextension that, for some, can cost them their homes and businesses. For many, as a matter of fact, debt is overused, and costs them their lifestyle and financial security. This, unfortunately, happens to both home and business owners alike, and has led to the ruination of credit, home, and business. Unfortunately, the pain of debt does not stop there. For people who do not quickly work to solve their financial woes, debt often traps its victims in a cycle, forcing them to dig themselves deeper into debt in order to pay it off.
So what exactly is debt, and how do you get rid of it if you have it? And, as a business owner, how do you utilize it?
There are two different schools of thought when it comes to debt:
So what exactly is debt, and how do you get rid of it if you have it? And, as a business owner, how do you utilize it?
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Photo by Ehud Neuhaus on Unsplash
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There are two different schools of thought when it comes to debt:
- The Dave Ramsey - There's a strong possibility that you have, at some point in your life, heard of Dave Ramsey, a multi-million dollar financial advisor with his own radio show, and several books. If you haven't, go look him up! While this article may contradict or differ in opinion from his philosophy on money, his overall stance regarding debt is spot-on, and well worth reading into. His essential point is that we should never go into debt, for any reason.
- Basically Everyone Else - As a culture, we've so heavily embraced debt that it has become a norm to be hundreds or even thousands of dollars in debt. And while debt may be a useful tool in some cases (like running a business), it usually isn't recommended to have any debt in a household. However, while debt may be normal, it isn't okay. Or, in short, debt is common, but not necessarily okay.
If you've managed to get however far in your life you may be without much (or any) debt, good for you! You're already pretty much where you need to be, and all that can be said is to keep on doing what's working for you. For those of you who haven't reached this point yet, don't despair, you will get there. And for those of you not yet working towards becoming debt-free, consider this a sign to start on that journey. It may seem like a long and arduous task, but the payoff of having no money owed to anyone is a huge reward.
Debt, is, in its most basic definition, an owing of money, goods, or services to another individual. Debt can be caused in a large variety of ways, ranging from using credit cards to gambling to using a barter system of services. However, there is not one system in which debt should be easily embraced or accepted.
We as consumers have accepted debt so completely that we do not realize the risks associated with it. This has led to people being willing to amount massive of debt completely unnecessarily. Because debt is so easy and simple to use, it doesn't require a lot of long thought to be willing to spend a few dollars here and a few dollars there via a credit card. After all, what's ten, fifteen, twenty dollars at the end of the month? The issue is, most people are not able to limit themselves to a sole purchase per month, and even if they are, the interest that such a purchase accrues often catches people by surprise. People who set aside a similar amount to the purchase(s) they've made are often blindsided by the high interest associated with debt, and end up behind on their bills, stuck in an ever-deepening cycle of debt that stacks up higher and higher. Even if it is just a few dollars of debt per month, that can build up very quickly over time, and result in the hundreds and thousands of dollars of debt that is very difficult to get out from under.
So how do we get out from under debt?
If you have only one debt, whether that's a credit card, mortgage, or car payment, then it's truly a matter of simply adjusting your financial lifestyle to aggressively attack the payment as much as possible. If it's a matter of paying off two or more debts, then you must adjust your financial strategy to limit your spending to well within your means, and pay off the smallest, most highly prioritized debt as quickly as possible, while making minimum payments on any other debts. This allows you to remove each debt methodically and quickly, while reducing your overall monthly payment as you continue to pay off debts.
But what about debt in terms of business?
As far as business goes, debt is a matter of opinion. Many business leaders, or the vast majority of them, subscribe to utilizing debt as a tool to create rapid expansive growth within their company or business. They do this by building a line of credit with a bank or organization in order to secure funds for assets (such as real estate, production materials, etc.). By securing these funds, businesses can begin making more money, faster, and add value to their company. As these assets begin to generate revenue, the business can then begin repaying their debts via the same strategy as before. Between the use of assets to generate income, and the resale of these assets, businesses receive a large amount of revenue, and are also able to repay their debt. This then gives them a larger line of credit, which leads to more money loaned, which provides more assets, which in turn generate more revenue. This repeating cycle allows for rapidly expanding growth within a company, and can propel businesses into larger-scale markets and generate high profits. Those who don't embrace debt as a tool are still able to build their companies and create growth, but this growth is often slower and less explosive than the companies who do embrace debt. Asset acquisition may be slower, and less rapid, which means that it takes longer to amass copious revenue quickly.
Is debt good? That can go either way. For business, yes. If you manage your debt wisely, it is often worth going into debt to create growth and increase profits. For personal life? No. Do not use debt, with some exceptions. Unlike businesses, personal debt does not generate you or your family revenue, and it often causes nothing but stress and financial insecurity. With the exception of purchasing a house, or dealing with certain bills, such as medical fees, debt is something that should be avoided as much as possible.
We as consumers have accepted debt so completely that we do not realize the risks associated with it. This has led to people being willing to amount massive of debt completely unnecessarily. Because debt is so easy and simple to use, it doesn't require a lot of long thought to be willing to spend a few dollars here and a few dollars there via a credit card. After all, what's ten, fifteen, twenty dollars at the end of the month? The issue is, most people are not able to limit themselves to a sole purchase per month, and even if they are, the interest that such a purchase accrues often catches people by surprise. People who set aside a similar amount to the purchase(s) they've made are often blindsided by the high interest associated with debt, and end up behind on their bills, stuck in an ever-deepening cycle of debt that stacks up higher and higher. Even if it is just a few dollars of debt per month, that can build up very quickly over time, and result in the hundreds and thousands of dollars of debt that is very difficult to get out from under.
So how do we get out from under debt?
If you have only one debt, whether that's a credit card, mortgage, or car payment, then it's truly a matter of simply adjusting your financial lifestyle to aggressively attack the payment as much as possible. If it's a matter of paying off two or more debts, then you must adjust your financial strategy to limit your spending to well within your means, and pay off the smallest, most highly prioritized debt as quickly as possible, while making minimum payments on any other debts. This allows you to remove each debt methodically and quickly, while reducing your overall monthly payment as you continue to pay off debts.
But what about debt in terms of business?
As far as business goes, debt is a matter of opinion. Many business leaders, or the vast majority of them, subscribe to utilizing debt as a tool to create rapid expansive growth within their company or business. They do this by building a line of credit with a bank or organization in order to secure funds for assets (such as real estate, production materials, etc.). By securing these funds, businesses can begin making more money, faster, and add value to their company. As these assets begin to generate revenue, the business can then begin repaying their debts via the same strategy as before. Between the use of assets to generate income, and the resale of these assets, businesses receive a large amount of revenue, and are also able to repay their debt. This then gives them a larger line of credit, which leads to more money loaned, which provides more assets, which in turn generate more revenue. This repeating cycle allows for rapidly expanding growth within a company, and can propel businesses into larger-scale markets and generate high profits. Those who don't embrace debt as a tool are still able to build their companies and create growth, but this growth is often slower and less explosive than the companies who do embrace debt. Asset acquisition may be slower, and less rapid, which means that it takes longer to amass copious revenue quickly.
Is debt good? That can go either way. For business, yes. If you manage your debt wisely, it is often worth going into debt to create growth and increase profits. For personal life? No. Do not use debt, with some exceptions. Unlike businesses, personal debt does not generate you or your family revenue, and it often causes nothing but stress and financial insecurity. With the exception of purchasing a house, or dealing with certain bills, such as medical fees, debt is something that should be avoided as much as possible.
