Debt life cycle
LIVING without debt may be possible, but in today’s world very improbable. Yet, the control of debt in one’s life is important for peace of mind.
It is important to recognize upfront that debt has a life cycle of its own that is best managed by coordinating it with one’s own life cycle.
Debt starts from birth: from birth to young adulthood, we typically are dependent on our parents or guardians for financial support. During this early phase of life, children can build up a substantial debt to their parents or guardian.
These caregivers may even undertake the cost of tertiary education or specialized vocational training for their dependents.
It may be necessary to borrow in order to afford the desired tertiary education or training. Parents and guardians often see this investment phase as a gift and an obligation, a testimony of their love and of their deep desire to set their children on an independent and self-sufficient path in life. In their estimation, it is not a debt but the expected sacrifice.
Then, there is usually a period of transition where young adults start to earn a living. In the early stages of this transition, they may still get continued, even if reduced, financial support from parents or guardians. In adulthood, money may be needed for separate housing, furniture, a vehicle and the other growing possessions. Some of the funds needed may have to be borrowed.
Gradually, the young adult moves on to establish a personal credit rating by borrowing. This is the phase in the debt cycle, when debt control can easily get out of hand.
Even with care there comes a time in the life of most adults when the debt burden seems like a ball and chain around the neck. Just to meet the mortgage, the car payments and the installment payments on the credit cards seems to drink up all of the available cash.
Then, there may be children to support and to educate. The monthly pay cheque is spent well before one gets it.
This represents the aggressive phase of debt.
Yet, with progress in life and careful planning, the next phase begins when one sees the prospect of paying off the major portion of one’s debts and one can begin to plan for retirement with some of the excess cash.
Slowly but surely, with self-control and with the normal pay increases over the year, one can manage to put a strong bit in the mouth of the racehorse called debt. Some people explicitly plan to be completely debt-free before they retire bringing an end to the debt cycle in their life.
An appreciation of the way debt can weave its way into one’s life and how you can make sure it eventually takes a timely exit is one sure way of avoiding the traps of debt along the way. Further, one must accept that debt will play an important role in your financial development over your lifetime. If that is so, one should plan to make the best of the struggle with debt.
Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek other counselling about their specific circumstances.