Let’s start by being positive, then we’ll get to the dangers of debt. Not all debt is bad. When you buy a home, for instance, that is okay. You have used other people’s money to buy something that will likely increase in value and build your wealth.

Bad debt is when you bought something on credit that decreased in value and you have to pay interest on it. A double whammy.  When you buy a new car on credit, you have purchased something that will lose its value (quickly) and then on top of that you have to pay interest so that the car costs more then the original purchase price.

Bad debt is like a virus, and if left untreated it will eventually spread and infect every area of your life (your mental and emotional state, relationships, even your career, not to mention your finances).  Every euro is one less euro of net worth you could have had. It means that you are working to pay someone else instead of paying yourself.

It is important to know what you spend your money on. Don’t guess. You never truly know how much it costs just to live until you start keeping track of what goes out each month. Until you do this it is a vague, unrealistic guess at best.

People throw their money away for a number of reasons but most are to satisfy short term needs and desires and to hell with the future. Sometimes being in debt leads to despression and affects other areas of your life, too. You are irritable, have alienated your friends and snap at loved ones. It is hard to lead a happy life when a lack of money is weighing down your thoughts and taking up your time. You feel overwhelmed and hopeless. You end up feeling like your life is out of control, like your spending. Plus you are so ashamed, you are afraid to tell anyone and you feel like you have to keep appearances, which means day by day you are digging a deeper hole.

Being in debt is a trap. You want to quit your horrible job, but how can you and still pay the bills? You want to go after your dream, but your debt prevents you from doing the kind of work you would love to do in favor of work that just pays the bills. You feel locked into your current situation, and you can’t get out. It would be better to set aside some money for your dreams instead of having it tied up in debt.

Debt is sometimes a selfish thing. Think about how it affects your loved ones. What would if YOU passed on? Would you saddle your heirs with your debt? Does your significant other know how bad things are?

QUICK QUIZ

If you are in debt (a lot or a little) do you understand how you got yourself into this situation? Identifying a problem instead of denying it is the first step to finding a soution. Take this test to see if you have a debt problem. If you can say ‘yes’ to more than a couple of these, you do.

1. Have you ever used your bank card (while dining or shopping) and worried that it would be declined due to late payments, nonpayment, or being over your limit?
2. Have you ever used shopping as a mood enhancer? Do you get a rush or physical sensation from shopping?
3. Have you had to ask your bank to up your limit so you could continue to use it?
4. Do you carry a balance and pay the minimum on your credit card?
5. Are you getting good at rationalizing your spending? (you buy something because it is on sale, you buy something because it is tax deductible)
6. Are you without a savings account right now?
7.  Have you ever been afraid to answer the phone because it could be a bill collector?
8.  Have you ever had to borrow against your paycheck to pay the bills?
9.  Have you ever borrowed money from your family or friends and failed to pay back?
10.  Have you ever gone bankrupt?
11.  Have you ever dated someone simply because he had money or in order to get something?
12. Do you play games with creditors (mail them the wrong check to buy time)?
13.  Have you ever spent an advance or bonus check before you actually received it?
14.  Is your checkbook not balanced right now?
15. Are you worried about how you will pay your bills this month? Is your cost of living higher than your annual salary?