Debt is a tricky thing. It’s so easy to get yourself into it, hard to pay it off and some people don’t seem to be able to live without it. A necessary evil? Maybe. But I must say I agree with Dave Ramsey as I believe that most debt should be avoided.

My personal approach might be more radical than most people’s. I believe that debt should be avoided at all costsapart from certain circumstances.

Car loan? No thank you. Pay for a purchase in instalments? Nah. Buy now, pay later? Hm, no. Of course not everyone shares the same opinion, and everyone’s situation is different. But when should you avoid and when should you borrow money?

Why avoid debt?

The concept of borrowing money is very simple. You borrow money today to pay for something that you don’t have enough funds to afford on your own. In exchange for the privilege of using someone else’s money to get what you want now you pay an interest on the amount you borrowed. It’s an easy concept and it’s easy to look at borrowing as the normal thing to do. After all, why wait and pay cash, when you can get whatever you want now for only a modest fee?

You see, the problem with debt is that it is EXPENSIVE. Even if you think you got a good deal at a low interest rate, make sure to factor in:

Don’t forget the emotional and health costs as well. If a portion of your pay check is tied up in paying off debt, that means less money to deal with an emergency or an unexpected expense. It also means you have less flexibility to quit a job you hate, and a lot more fear of getting fired. This causes stress and can also affect your relationships. When people normalize debt, it tends to become a habit and can quickly snowball. The easiest way to avoid this is to say no.

Getting into debt has a lot to do with wanting things NOW. The best way that I know to avoid the debt trap is simply not to buy what you can’t afford in cash. Easier said than done, but it is really a mindset exercise. If you dig deep you will see that most consumer purchases can be delayed or avoided. Do your planning, save up, find alternatives and find joy in not wasting money.

What if I actually need something?

There might be situations in which debt is unavoidable. Maybe you need something urgent (and don’t yet have an emergency fund). Maybe you desperately need a car – transportation might be unreliable depending on where you live.

If this is the case, make sure you:

When should I borrow money?

Personally, I suggest avoiding debt at all costs. Except in certain circumstances. You see, there is a difference between consumer debt, and the so called good debt.

Consumer debt should be avoided, because all it does it cost you money and cause you stress. Car loans, credit card and personal loans cost a lot and can be avoided with good financial planning.

Good debt is debt that is considered an investment, and that usually has lower interest rates. Some of the circumstances in which debt might be smart are:

I hope this post has been helpful to you. Do you have debt? Have you ever borrowed money and regretted it? Let me know in the comments below!

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