Where did the debt come from?


Have you ever got to the end of the year and looked back wondering where all your money went. Or you look at the nett amount you earned on your tax return and wonder where it all went.

Understanding where your debt came from is very important when you are looking forward to a time in the future when you are debt free.

We accumulate debt because we see it as normal behaviour to buy things now and pay for them later. We were never taught or encouraged to save now for the gratification later, that’s why there are so many store cards and cards with points systems. Credit is so easy for us all.

I know so many people who live from pay to pay and struggle to make ends meet because they are caught in the cycle of debt. The average household has two to three credit cards and in a lot of cases they are right up to their maximum. Then they received a letter from their bank suggesting a limit increase.

I want to share with you some sneaky ways companies get you to buy stuff from them whether you need it or not.

Decoy pricing – This is where the company offers two products at two different sizes. The larger product is only marked up at a fraction over the smaller item making you thing that you are getting a bargain by spending just a few dollars when you only ever needed the smaller item.

Overpricing – Have you ever eaten at a restaurant and noticed that there is that one item on the menu that is super expensive. That’s designed that way to make you think the rest of the items are cheap by comparison. That’s also why real estate agents take you to the big ticket houses before taking you to the house that seems like a bargain.

Retail stores teach their employees how to manipulate you into buying by asking you rehearsed questions that open the door to a conversation and better rapport.

Interest free – Have you seen the ads on the television offering products interest free for the first fifty months. When you sign up for that you are given a store card that has an annual interest rate of around 25-29 percent. The repayments are set up so that you never pay off the item within the 50 months and the remainder then goes straight onto the store card.

Reward credit cards – These types of card are linked to rewards clubs like Qantas frequent flyer so for every dollar spend you get so many points. The issue here is that not many people pay off the balance within the 55 days interest free period and get caught in the long run.

Convenience – It’s much more easier to shop in the same place for everything right? Wrong, and I will give you an example. While picking up some groceries recently in the mall I stopped by the liquor store to purchase a carton of beer. Without checking the price I discovered it cost me $49. Of course, when I got home I checked online for any specials and found the same carton on sale for $38 in a store just a few kilometres from my house.

There are so many more examples I can give you. The lesson here is to understand the traps when shopping so you don’t suddenly find your debt increasing. From this point forward_Be Aware.