Here at Abundance Bound, we’re on a mission to free creative artists and entrepreneurs from the pain and stress of out of control debt. More people’s dreams crumble under the weight of debt than from stock market declines or rising health care costs.
But what happens when you must take on debt? What if there is no other way?
This may sound obvious, but in situations where debt is the only way out, you need to be careful. You want to feel the weight of the decision before you submit to another credit card, car loan, or personal expense debt. Like preparing for a new member of the family, you want to prepare for debt ahead of time. The burden should be expected, and the mode to pay off the debt in the future should be clear.
I’ve always liked a Steven Covey analogy from his book Seven Habits of Highly Successful People. Covey writes that whenever you pick up a stick, even if by one end, you also pick up the other end whether you want to or not. It comes along for the ride. If you’re going to carry the other end anyway, doesn’t it make sense to examine it before deciding to pick up the stick at all?
When you sign up for debt, you need to see the entire length of the “stick.” Here are a few questions to consider:
1) How are your expenses going to have to change to make the monthly payments? What are you going to cut out for a season, in order to repay the loan? You can’t take on a new debt without adjusting your spending plan. There is only so much money available.
2) When will you pay the debt off? It’s interesting to examine how companies take on debt. A corporation hypothetically may take out a twenty year loan, knowing they could have agreed to different terms with a shorter payoff period. They take out the longer loan to give themselves flexibility, and set up an internal plan to pay the debt in less than five years. Could you do this? Most companies will take on debt with an entire debt strategy independent of the bank’s terms, but the average person managing their personal finances only pays according to the bank’s schedule. Who’s really in charge?
3) What is your plan to avoid resorting to debt in the future? It’s probable that something didn’t go according to plan when you have to take out debt. Was there an emergency and you didn’t have a reserve? This is a good time to evaluate actions that created the need for debt. This isn’t about “beating yourself up.” I believe it’s important to release any shame about choices we’ve made in our past. This is just about finding clarity about where you are so you can chart the best course towards your future.
Asking these questions helps you examine the whole “stick” and not only the situation you’re in now. Even though you’ve determined that taking on debt is the only answer, you don’t want it to sink your financial ship. Some of the most powerful work we do in our Financial Empowerment Program, is helping our members create realistic and manageable debt plans that work with their lives. By first taking the time to plan your debt strategy and then implementing strategies to avoid problems in the future, I promise you will heal your financial house more quickly.
