Sometimes we’re asked: How much debt is a problem? Unfortunately there isn’t a straightforward answer. Part of it is about how much income you have to repay your debts; what you owe; and whether that income is fairly likely to continue.
Another part of the answer is how you feel about the debt. For example some of us don’t like owing anything to anybody and feel stressed when we owe even a small amount. For others, we are so relaxed about borrowing that it has to turn around and bite us before we think it has become a problem.
Borrowing money when it’s done in a carefully thought out, affordable way, can make things happen that would otherwise seem impossible or actually save you money in the long run – see Save or Splurge.
In a nutshell, before you make that purchase, pause… and then pause again!
Before you borrow more money…
Whichever category you fall into, we have outlined some of the most important things to consider if you are thinking about taking on more debt:
- Add up the total amount you owe – but don’t include your mortgage or student loan if you have them – how does the total compare to your yearly income? If the answer is scary, then stop borrowing.
- Taking out further debt to help when you are struggling to pay your existing debt is rarely a good idea – take a look at How Can I Tackle My Debts first.
- If you are only making the minimum payments on credit and/or store cards, think seriously about tackling this ticking time bomb before taking on any more debt.
- If your borrowing is increasing to pay for holidays, your social life, extra clothes or other things that aren’t essential to protect basic health and well-being, then you are building a house of cards that will come down sooner or later. It can be tempting to carry on enjoying yourself now and hoping that something will turn up – but tomorrow will come and it’s not going to be pretty!
In a nutshell, before you make that purchase, pause… and then pause again! Even if you feel the purchase is essential for you or your family, before you put it on credit, make sure you are satisfied that you are not going to live to regret the decision. It may also be worth asking yourself that all important question…
‘Are you sure you’re not buying things that you don’t need, with money you don’t have, to impress people you don’t really like?!’