The Evilness of Debt

In today's discourse, I'd like to delve into a topic that's often shrouded in complexity and controversy: the nature of debt. It's a double-edged sword, a tool that, when wielded wisely, can foster growth and expansion, but when misused, can lead to ruin.

Debt isn't inherently evil; it's a powerful financial instrument. Historically, leveraging in the market was a common strategy, especially in periods of low interest rates. This allowed individuals and corporations alike to borrow money inexpensively, using it as a springboard for growth.

However, the landscape has shifted dramatically in recent years. Interest rates have surged, injecting a dose of uncertainty into the once-clear waters of cheap borrowing. This change has rattled both personal and corporate financial planning, underscoring the volatile nature of debt.

At the individual level, debt can be a catalyst for personal development, enabling investments in education or the launch of a business venture. Corporately, it can underpin expansion and innovation. The crux of the issue lies not in the act of borrowing, but in the terms and the purpose.

Debt becomes a concern when it's too freely given, even if not necessarily cheap. In such scenarios, the ease of access can lead to imprudent borrowing, overshadowing the potential benefits with the looming risk of financial overextension.

With my personal experience at the bar, we had to take on a working capital loan, with the assumption that the business would continue to run across the course of the debt. Additionally, there was a personal guarantee (PG) component. I'd like to highlight that unless absolutely necessary, you should NEVER take on a debt with a personal guarantee because it exposes you to that liability, and takes away any protection that a Pte. Ltd. might give.

It's crucial to distinguish between 'good' and 'bad' debt. For instance, taking on a mortgage in Singapore is generally seen as acquiring an appreciating asset, a cornerstone of long-term financial stability. Conversely, financing a car, which is a depreciating asset with a limited lifespan over 10 years, might not be as judicious. The distinction here is clear: debt that builds value over time can be beneficial, while debt tied to depreciating assets warrants caution.

In navigating the treacherous waters of debt for yourself, consider these pointers:

• Evaluate the purpose of the debt: Is it for an appreciating asset or a depreciating one?
• Consider the terms: Are the interest rates favorable, and can you comfortably meet the repayment schedule?
• Think long-term: How will this debt serve your future self or business?

Debt, in essence, is a necessary evil, but its impact is not monolithic. It's the discernment in its use that separates the prudent from the profligate. As we tread this fine line, approach debt with a healthy dose of respect and a clear strategy, ensuring it serves as a ladder to our goals, not a trap ensnaring your financial freedom.

If you are currently debt laden ,here are some ideas to really whittle that down:

1. Assess and Prioritize Your Debts: Start by laying out all your debts clearly. Understand the interest rates, minimum payments, and due dates. Prioritize them either by the avalanche method (focusing on high-interest debts first) or the snowball method (starting with the smallest debts for quick wins).
2. Create a Lean Budget: Revisit your budget with a fine-tooth comb. Identify non-essential expenses you can reduce or eliminate. Redirecting these funds towards your debt can accelerate your repayment process. Remember, temporary sacrifices can lead to long-term gains.
3. Increase Your Income: Explore ways to boost your income, be it through overtime, a side hustle, or freelancing. Every extra dollar earned can be a powerful weapon against your debt.
4. Negotiate Better Terms: Don't hesitate to contact your creditors to negotiate more favorable repayment terms. You might be surprised at their willingness to adjust interest rates, waive fees, or modify repayment schedules.
5. Consider Debt Consolidation: If juggling multiple debts becomes overwhelming, consolidating them into a single loan with a lower interest rate might simplify your payments and reduce the amount of interest you pay over time.
6. Use Windfalls Wisely: Any unexpected financial gains, such as tax refunds, bonuses, or gifts, should be directed towards paying down your debt. While it might be tempting to splurge, using these windfalls wisely can significantly dent your debt.
7. Stay Motivated: Debt repayment is as much a psychological battle as a financial one. Celebrate small victories to stay motivated. Whether it's paying off a credit card or reducing your overall debt by a certain percentage, acknowledging your progress is crucial.
8. Seek Professional Help: If the burden of debt feels too heavy, don't shy away from seeking advice from a financial counselor or advisor. They can offer personalized strategies and might introduce you to options you hadn't considered.

Remember, tackling debt is a marathon, not a sprint. It requires patience, discipline, and a solid plan. Stay committed, stay focused, and gradually, you'll see the mountain of debt transform into a molehill, paving the way to a more secure financial future.