Are you addicted to debt?
11 July 2016
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On mobile, on digital, on demand, this is Old Mutual Live, Money Coach. Hello and welcome, my name is Chris Gibbons. In the old days if you couldn’t pay your debt, you were thrown into a special jail called a Debtors Prison. There you would languish until somehow you had settled your obligations. It’s a bit different in the modern world, but nonetheless, getting out of debt can often be as difficult as it is easy to get into.
What are the best routes? We are joined now by Gerald Mwandiambira, CEO of The Savings Institute of South Africa, a Chartered Financial Planner and author of the book, My Money. Gerald, welcome to you. First off, in the section on debt in your book you ask an important question: Am I addicted to debt, what do you mean by that?
Gerald Mwandiambira: When we say: Are you addicted to debt, we’re really asking a simple question because many people use debt as a crutch, in term of life situations. When times are hard, when things are hard, some people use debt in the same way others use drugs or alcohol to cope with life situations.
You really need to ask yourself that is the debt you’re in as a result of you simply not having the financial education and know-how to deal with money? Or is it really a sign of a deeper problem in terms of your personal relationships with finances and other life situations.
The signs of debt addiction
CG: Gerald, what are the signs of debt addiction?
GM: There’s actually quite a few signs which people exhibit which one can really ask themselves if they’re addicted to debt. The questions you really need to ask yourself are: Does debt make your home life unhappy? Does the pressure of debt distract you from your normal work?
Are you become a danger to your colleagues because you’re thinking about debt all day? Is debt affecting your reputation? Do people know you as the guy who borrows at the end of the month? Is debt causing you to think less of yourself? It becomes a self-esteem issue.
If you’re in debt often you really use it now to try and improve how you feel about yourself and you need to ask yourself this other important question: Have you ever given false information to obtain credit? You will find many people will give a ‘yes’ to that.
There’s no such thing as a white lie when you’re applying for a financial contract. Have you ever made unrealistic promises to your debtors? I’ll pay you at the end of the month, meanwhile having no solution on how you’re going to get that money.
Another question is: Does debt make you fear that your employer and your family and friends will find out? Are you hiding your debt situation? When you’re faced with difficult financial situations, does the prospect of borrowing give you relief? When you can’t find money, are you just happy to go and borrow?
Another thing, there is that link between debt and alcohol. Does debt make you feel like having that extra drink. Also, have you ever borrowed money from a micro-lender or any family member without having any idea how you’re going to pay it back?
The other two questions to consider are: Have you ever started a plan to pay your debt and just broken it because you don’t care. Also, do you justify your debts with that magic wand that one day I’m going to earn more, when I’m earning more, I’ll clear all my debts and life will be happy ever after? If you answered yes to more than seven of those 15 or so questions, it would probably mean that you are actually a compulsive debtor. You do have a debt problem.
You need to get to the root of your problem
CG: Is there treatment Gerald for this alarming condition?
GM: The recourse is really this. Like with alcohol addiction, you need to go to the root of what’s causing it. Just like others use food as a comforting mechanism to deal with life issues, some people use debt. Some people have bad relationships which cause them to go and shop so that they feel better about themselves.
Some people are just trying to avoid their youth, what they went through in their youth and trying to kill their debts in that way. It’s really a matter of you need to talk to a financial planner initially. If the problem is actually much deeper, then you might need to go and start seeking professional help from a psychologist or similar.
CG: Let’s assume that I’m not addicted to debt in the way that you describe, but I do have a lot of debt. It is going to become a problem unless I do something about it quickly. What are the first steps to ridding myself of this burden?
Steps to overcome your debt problem
GM: The first steps to getting rid of your debt is really to take stock. It’s that moment when you look at yourself in the mirror. It’s that moment when you quantify how heavily indebted am I? It’s a very difficult exercise where you come up with that number that I actually owe R300 000, I owe R400 000 and that excludes my bond, just in personal loans.
I’ve seen such numbers from middle class people who look like they’re living good lives. Once you’ve looked yourself in the mirror, then you can start doing the next step, which is the most important. Seek help and come up with a plan.
Remember, we talk about financial planning Chris, it’s about a plan, it’s not an accident, it’s about something that’s very conscious, very deliberate. Then once you have a plan in place, you start with your budget and you start chipping away at the debt.
Another important thing to remember is that you never got into debt overnight, so don’t expect to be out of debt next month. If it took you five or 10 years to get into that debt, it might take you half that time or similar time to simply get yourself out.
CG: You’re listening to Old Mutual Live, the Money Coach edition, on demand, visit dogreatthings.co.za. Gerald, a final question for you, there’s a process to help called Debt Review, what’s that about?
What is a Debt Review?
GM: Debt review is an interesting process which was introduced under the National Credit Act a couple of years ago. It’s a process where somebody literally goes to a debt review counsellor and says: I surrender all my debt, I will no longer take on new debt, I will cut up all my cards.
I will ask the debt counsellor to make an arrangement with all my creditors that I get out of debt. In return, I commit not to borrow anymore and not to take on anymore additional debt. It’s the last shop before you can be declared bankrupt. It’s something you need to do very seriously because it only works when you’ve reached a situation where your debt and the debt plan cannot get you out.
Don’t just rush into debt review because some people have done that and it hasn’t worked for them. Debt review works for a small minority of people, but for most people who are in debt, simply starting to have a plan and deal with it. It will take time, but you can get out of debt.
CG: This has been another edition of Old Mutual Live Money Coach, my name is Chris Gibbons, I’ve been talking to Gerald Mwandiambira, CEO of The Savings Institute of South Africa, a Chartered Financial Planner and author of the book, My Money. Gerald, if anyone wants to get hold of a copy of your book, how would they do it?
GM: It’s simple, it’s askgerald.co.za. Send any comments or any queries and you can get a book, let’s start becoming financial planned individuals and stop living with financial accidents.
CG: Very sound suggestion indeed. Remember, please feel free to get in touch any time if you have any questions for me or topics you’d like covered on Old Mutual Live Money Coach. Just send them direct to me at firstname.lastname@example.org, I’d be delighted to hear from you. Until the next time, thank you for listening, Old Mutual Live, on mobile, on digital, on demand.