Changing your debt mindset

May 22, 2018 |

While there are plenty of advertising offers on the internet such as  ‘reduce your debt in only minutes’, and ‘become debt free sooner’, the first step for anyone who would like to change their debt circumstances is the change their personal debt  mindset. How you view debt and how you use debt in your life today will determine what financial position you will find yourself in tommorrow

Which debt?

As we have written many times before, not all debt is the same. While some debt is required to assist you in growing your wealth and asset base, other debt is merely a drain on the family budget. The Former would be your business loans, and mortgages over property assets, the later is your credit card debt and any other debts that you carry as a memento of past fun times.

Understanding that you should have no ongoing credit card or other lifestyle debt, as this debt is the unfortunate result of lifestyle choices made in the past – will help you make better debt choices going forward.

However just because some debt is better than other debt, is by no means a reason for choosing to hold on to it and not repaying the loan principal.

Debt Reduction

Debt reduction should be a priority no matter what debt you are carrying. Many investors believe that they do not need to repay investment loans just because these are tax deductible. While you may well decide to prioritize the repayment of investment debt last in  the queue of debt reduction, all loans including investment loans should be paid down as soon as possible.

Unfortunately many people never make it as far as investment debt. They overextend themselves with credit card debts, personal loans and interest free offers from furniture store, and then spend the bast part of a decade trying to bring these under control.

What is your debt costing you?

The cost of your current debt is more than simply the dollars and cents that you need to pay periodically to the finance provider. The cost of this debt is the opportunity cost of using the money that is today being applied to service this debt from being available for some other purpose. Furthermore, if your debt has led you up the garden path and in the direction of defaults or some other bad credit, then you must consider the cost of bad credit acquired through excessive debt as also being attributed to your cost of debt.

Changing your debt mindset

Creating a budget to identify where your money is going today is the first step to a new debt mindset. It is difficult to change something if you are unable to control it. Then it is important to stop spending on credit. Using a debit card alternative can help you bring your debts under control.

Moving forward, consider available debt reduction solutions such as balance rollover credit cards, consolidating unsecured debt into a cheaper mortgage, debt negotiation or even possibly a debt agreement. The solution that is best suited to your will depend on your specific circumstances. However the first step is always recognizing that you must change your spending habits and your debt mindset.

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