Debt: the good, the bad and the ugly


Is it just me or has it become easier to get debt than a text back!! We have become dependent on debt because it is easier, a personal loan can be approved and the funds deposited into your account in under 48 hours, unlike savings which take patience, discipline and research to make sure you are using the right savings vehicle for your needs.  Re tshela ka dikoloto (we live by debt), our daily struggle to keep our heads above water and for some they are drowning in it, credit cards, store accounts, mortgage, car loans, personal loans the list is endless. Debt is just the gift that keeps on giving and in order to maneuver through this seemingly unending maze of debt repayments it would be beneficial to know how to make it to the other side. Though it is often the big bad wolf in many people’s stories, not all debt is bad.
There is good debt and bad debt.  Good debt is debt that will enable you to get some form of return in the future, for example, purchasing equipment to start your side hustle which will result in another source of income. Some have leveraged this in the form of building a multi residential to earn rentals which they can then use to pay off the loan which they took out.
A tip I learned from one of my mentors is that once you clear off a debt, reinvest the money two ways; save half toward a brand-new car or whatever other goal you have and enjoy the rest, in this way you will have a hefty deposit for your next car. Which brings me to my next point in the dilemma of debt, is that we no longer put down deposits on large purchases and the resultant other fees that accompany them i.e. attorney fees when buying a house which means we become even more indebted. Bad debt is debt that purchases liabilities, things that take money from you i.e. car, store accounts, credit cards etc. and my big one, a house. I don’t want to purchase a house, I have thought about it many times and my indecision, I’ve realized, is based on the fact that I just don’t want what seems like a 30-year sentence which is longer than I have been alive, maybe it is the Millennial in me. Houses are very expensive to maintain, yes, I will have a place “to call my own” but honestly, the bank owns it until I finish paying them-the illusion of ownership and not the reality of it.  I truly believe if I lay a solid foundation with my finances and I am patient, I can buy a house cash or put down at least half if not more of the required amount as a deposit. Every major life event requires money, a lot of money, getting married or having children but we do not plan for and finance these through loans and as a result the weight of debts overshadows the joys and even then, divorce is also very expensive. I am convinced attorneys charge you to call them, your bill starts the moment you think about engaging them for anything.
I took a poll with my contacts, I asked them if they thought employer backed loan schemes with banks were beneficial and it was a unanimous YES, because it allowed employees to get a better rate. My question was this: why the opposite can’t be true for savings and our investment where we get employer backed savings rates and unfortunately a friend of mine told me that we simply didn’t want to put in the work and patience to save. Another friend highlighted metshelo as a saving vehicle, usually for the short term. I truly wrestle with the traditional motshelo model. The motshelo model is a group of people making monthly contributions which are loaned to members (again, the gift that just keeps on giving) at a rather high interest rate which is on average 20%, much higher than the bank rates of around 12 or 13% depending on your loan scheme. At the end of the year all the money is distributed to members if everyone pays off what they owe which is not always the case and the cycle starts all over again the next year. Some people are drowning in metshelo debt so it defeats the purpose of saving. I was elated last year when I got my first motshelo payout but I realized that I could’ve saved the same amount with just a slightly higher contribution each month and not have been “strongly encouraged to take out a loan from the motshelo which I did not need at the time. A motshelo model I am a huge fan of is trust funds where you make monthly contributions with a savings element and loan component and the beauty of it is that you can never borrow substantially more than what you have saved so that when you leave the group, what you owe can be offset from your savings. The savings are invested with professional investment managers and grow over time and you can decide to contribute over and above what is required to create a bigger savings pool, now this is a motshelo I can get into!
I am fortunate to have a manageable amount of debt however there are those who are drowning in it. Many people have even taken their own lives and ended marriages because of their overwhelming debt, the saying “madi a lotlhanya “is sadly true. For those who are in this predicament, seek help from a Certified Financial Planner to find ways to ease this burden.  We all think it will never happen to us, creditors calling us at our work places, having our possessions repossessed and auctioned off, garnishee orders etc. but we are all susceptible to making bad financial decisions. Just because you qualify for X amount does not mean you have to take the entire amount, take what you need and a tip for us all, know your credit status!! Pay off the debt with the highest interest rates first, usually credit cards and store accounts and once you’ve cleared those channels the money to increase your repayments on your other debt. Keep out of debt and owe no man anything, except to love one another (Romans 8:13 AMP).
PS: You don’t have to be a hero, you just have to be what other people aren’t and that is consistent because it is the small things done consistently over time that make the biggest impact. Next week we discuss saving-our greatest struggle.