Dig­ging your head in the sand won’t get rid of debt

Auckland City Harbour News - - NEWS -

The strate­gies and fi­nan­cial re­wards of deal­ing to mul­ti­ple debts are well-known al­though there is de­bate over the best way to do it.

One on hand some sup­port snow­balling – pay­ing off the small debts first to give your­self the en­cour­age­ment needed to stick to the task of then knock­ing off the big ones.

Others sup­port debt-stack­ing – chan­nelling all avail­able money at the high­est-in­ter­est debts un­til they are gone, mak­ing min­i­mum re­pay­ments on the rest, be­fore mov­ing on to the next high­estin­ter­est debt.

What is less fo­cused on are the psy­cho­log­i­cal re­wards of get­ting out of debt. There is a di­rect link be­tween men­tal well­be­ing and debt, es­pe­cially prob­lem debt.

You may not al­ways like your boss, but you get to go home at the end of the day and toss around a ball with the kids, have a glass of wine with your sig­nif­i­cant other and work on that novel which will one day make you fa­mous. By con­trast, you might not like prob­lem debt but it’s still there when you go home. That can be stress­ful.

In the short term, stress can bring out the best in peo­ple. It can be a mo­ti­va­tor and get the adren­a­line pump­ing. Long-term it’s far less pos­i­tive. It is as­so­ci­ated not only with men­tal ill­nesses like de­pres­sion, but so­matic dis­or­ders like poor sleep, heart dis­ease and other forms of poor health.

It can make us an­gry, un­re­spon­sive, guilt-rid­den and change our own pos­i­tive per­cep­tion of our­selves. It can also lead peo­ple to take a not-give-a-damn at­ti­tude and to some of the ad­dic­tive habits which iron­i­cally just make it even less likely that the debt will be tack­led.

A bunch of neg­a­tives, I know, but there is a pos­i­tive in all this, namely, there are some pretty big pyscho­log­i­cal gains to be had from get­ting out of debt.

Not all debt is a prob­lem or is nec­es­sar­ily stress­ful to have.

The Dublin of­fice of global ac­coun­tancy firm Grant Thorn­ton, a spe­cial­ist in prob­lem debt (which Ire­land has a lot of ex­pe­ri­ence of), sees ‘‘debt’’ as dis­tinct from ‘‘credit’’.

While credit is ‘‘ money that is agreed, un­der con­trol, re­paid reg­u­larly and used to ben­e­fit’’ (such as your mort­gage), debt is ‘‘money that has not been paid and should have been but can be with more or less dif­fi­culty’’.

Grant Thorn­ton noted the link be­tween debt and men­tal and phys­i­cal health, but also the prospect of im­proved men­tal and phys­i­cal health for peo­ple get­ting on top of their debts.

A re­turn of lost en­ergy and fo­cus may re­sult, and that may make it eas­ier to stay fit and at a rea­son­able weight.

Be­ing debt-free brings free­dom and free­dom car­ries an in­creased sense of self and dig­nity.

No-one has a call on your in­come, bring­ing added se­cu­rity.

Pay­ing it off can be a mo­ment that draws a line un­der past be­hav­iours – reck­less youth, a failed ven­ture, a di­vorce.

All of th­ese things will re­shape your sense of self.

Last word to Grant Thorn­ton. If you do have debt (as op­posed to ‘‘credit’’), its ad­vice is: Don’t bury you head in the sand, seek help from bud­get ad­vis­ers, re­search on­line, ditch worry (it only makes things worse), be hon­est about your sit­u­a­tion not em­bar­rassed, lis­ten and share your prob­lem, and recog­nise there is hope, so be pos­i­tive and fo­cus on the fu­ture not the mis­takes of the past.

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