The Debt Dilemma and You

Behind the numbers, behind the loan, behind the ratios and the loan conditions there is always a live, breathing human being. That is why sometimes when I do a loan it causes me to have some feelings about what I’m doing. At times I am extremely happy for someone and at other times I feel a certain loss. What am I talking about?

Debt managementWell, I’m talking about those situations where people seem to just rack up debt year after year and seek to use the equity in real estate to pay off everything. With the recent ramp in home equity there is a lot of equity available for this. However, soon the end will be coming for a lot of people. I am convinced there is a better way to deal with debt. In fact I have found the best system.

After a few years in the lending business I’ve noticed that debt is not related to income. Higher income people do not necessarily have lower debt. I’ve seen people with lots of monthly income who are struggling to make the minimum payments and I’ve seen modest income folks with no debt. So, what it the key to debt?
In fact it’s all about debt management. The story doesn’t end there either, because debt management is a function of a persons temperament, background and self discipline. It has nothing to do with income and everything to do with expense. Expense is much more tricky to manage than income. Why is this?

Expense is determined by what a person values and cherishes. These in turn are determined by a persons temperament, background and self discipline. For example, I don’t buy video games. Why? Because, I didn’t play video games while I was growing up. So, this is not an expense for me. However, I do spend a lot on travel since my family is scattered across the world. I put money in what I value.

Suppose I did like video games and had an expensive travel habit as well. How do I deal with this situation? One way is to make more money, but that’s not as easy as it sounds. It’s a lot easier in this situation to control expenses. When it comes to controlling expense you have to understand that life is about being able to make the right trade-offs. We live in a world of limitations. If I want to spend x amount on video games and y on traveling the world then my income better be greater than x+y. It sounds very simple but for a lot of people it isn’t. This is because people have different temperaments when it comes to dealing with purchases.

Microeconomic theory for the most part says people behave rationally in the marketplace. I have found it to be exactly the opposite. People are very emotional in the market place. So, they are very prone to make a x+y purchase even if it exceeds their income but satisfies a preconceived need.

What is the answer then? For starters, you need to realize that you can’t mange your debt without first developing a budget and then living within it A budget where you’ve made the appropriate trade-offs requires a bit of self discipline. There are lots of programs available for budgeting, but in my quest I have come across no better program than Crown Financial Ministries. It promises complete financial freedom.

I’m not trying to push any religious views here, all I’m saying is Crown for the past thirty years has been helping people become debt free. Their success rate is remarkably high. Crown has developed great financial tools and their foundation is time tested. You simply will not go wrong following their principles. I’ll talk more about the impact Crown has had in my life in a later post. In the mean time I want to ask you: Do you have a budget? How are you managing your debt?

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