Exjackly

This is part 1 of 3 articles discussing what makes a debt a Bad Debt to have. The parent article is What to do about Bad Debt.

Here is a short post from Debt Consolidation Lowdown called Live Within Your Means that touches on a similar topic.

Motive is the greatest and most difficult source of bad debt to solve. We all have reasons, usually completely defensible to ourselves, on why we have taken on each and every bit of debt that we have. The problem with this is it allows our creditors to control our lives because we have to work to pay them off.

I am not going to go extreme and say that all debt is evil. It is not, but most debt for the average consumer is not good for them. With the exception of homes, most credit is received to purchase items that lose value over time. For credit cards, personal loans, and even some car loans the benefit does not last as long as the payments do.

Here are some of the motives that we use to justify taking on more debt:

• Habit
• Supersizing
• False Economy
• Sales
• Matching Friends
• Convenience

Each one of these examples is a bad motive for incurring debt. Whenever one of these reasons justifies taking on debt, the reasoning is flawed. It may take time, but almost everybody should be able to live without taking on any debt that does not help you reach your financial goals. The only exception that comes to mind are medical related debts – and that is a huge topic by itself.

If you look at this list of habits, there is really one theme that ties them together. They all encourage spending beyond your income – AKA Living Above Your Means.

• Habit is about doing the same old thing. For somebody to stop this, they have to recognize that what they have been doing is bad. Then they can figure out the alternative.
• Supersizing is known by salesmen as the upsell. The most common example is fast food restaurants. The regular meal is at best the maximum amount of food somebody should be eating. Upgrading to the larger sizes though only costs a few cents. So millions of people do it daily, enlarging their bodies and shrinking their wallets. Just say no.
• False Economy can happen two different ways:
  • Buy something that is cheap and have to replace it when buying a higher quality would have cost less to begin with.
  • Buy something expensive that is overkill – where the inexpensive version would have done just as well.
• Sales tug at us all. For something needed – or saved for – a sale is a great thing. It is when the sales induces buying more stuff that there isa problem. If there is no need for it, something is not a bargain no matter what price you pay.
• Matching Friends happens when being around friends changes behavior. Salad and bread sticks when solo becomes steak and wine with friends. This throws the budget out the window and is an easy way to run up the debt. The worst part is that some people not only try to match their friends, but they want to beat the neighbor – who is still a stranger – down the street.
• Convenience happens. It is easier to get something now, or to buy something because you are out even if there is no cash to pay for it. The credit card comes out and the cha-ching of the register is money flying out the door. Even small things add up because businesses exist solely to conveniently meet people’s desires.

Here is an example to see how easy it is to trip up in the motivation department. I know I can attest to having done most or all of these in the past.

ExJackly is hosting a poker night for his 3 friends.
1. He goes to the store to get some wine and beer and snacks like normal.
   While there, he finds the chips are $3 per bag or 4 for $10. He grabs 4 bags.
2. Remembering that Mattly broke a couple of poker chips last time when his chair rolled over them, Exjackly picks up a new set of casino-grade and weight chips.
3. On the way home, he fills up on gas and because of the $2-off a deluxe car wash, he gets the car cleaned.
4. That night, after the game, Exjackly is tired and ready for bed as he shows his friends to the door. One of them asks if Exjackly wants to come with them out to the local diner for a late night meal. Exjackly decides not to disappoint and joins them. At the diner, there is a special on the shrimp cocktail which everybody decides to get.

How many bad financial decisions did Exjackly make? Which ones were they and why?

The trick to avoiding these motivational issues with debt is to alter how we think about money to begin with. It takes time, especially for somebody who is currently in debt already. For anybody who is serious about avoiding bad motivational debt, it is possible.

1. Do not be afraid to be different. Choosing a lifestyle without debt will mean acting differently than friends and family. This is especially true at the beginning when there is bad debt being eliminated.
2. Budget and stick to the budget.That means giving credit to your budget busting activities and choosing to make them fit the budget instead. Stick to it.
3. Say NO and suggesting affordable alternatives. This could be as easy as hosting a potluck instead of going out on the town. It could be as difficult as convincing yourself and your spouse that the 1993 Volvo station wagon is a better vehicle than the 2008 Ford Mustang.
4. Put all non-accounted for funds towards eliminating bad debt. Do not drain emergency funds or short other budget categories. If the money is not planned for use elsewhere, do not spend it elsewhere. If it is not spent elsewhere, it can be spent on eliminating debt.
5. Operate on a cash basis. Do not carry around wads of cash. Instead, just work to not spend money until you have it available.

Spend the correct amount of time doing this, and bad debt will be a thing of the past. Even better, new habits will be established that will discourage bad decisions in the future.