56: Everything You Need To Know About Debt

Today, I want to talk about debt.  I think debt is something that affects a lot of people negatively, and it doesn't need to. If you worry about having debt or think there is something wrong with you because you have debt this episode is for you.

In this episode you will learn exactly:

  • what debt is and how to manage it.
  • How to stop feeling anxious about debt.
  • How to get out of debt.
  • How to manage debt.
  • What the cause of debt is.
  • How to stop getting back into debt.
  • Is there such a thing as good debt and what it is.

You can listen to the episode above or read the unedited transcript below.

Transcript

Meaghan Smith  00:20

Well, hello beautiful people. And welcome to another episode of the money mindful Podcast. I am your host, Meaghan Jean Smith, I am a life coach for women. And I specialise in helping you create your extraordinary life. And of course, money mindset, as always, as I bring to you on this podcast. I've missed you guys. I know that sounds strange, because you probably have just had me in your earbuds last week. But I've been out of action for a few weeks with a really annoying throat infection and haven't been able to talk.

Meaghan Smith  01:05

I planned to be on here with you weeks ago, and I haven't been able to exactly now to talk properly. And I actually really miss it. I miss you guys. It's a funny notion, because here I am, I'm sitting on my own in my office. But I actually feel very connected to you, when I'm here. And when I don't do this practice of talking to you. I I miss it, and I miss you. But one of the really cool things. And the silver lining, I guess. I mean, it hasn't really got anything to do with me having a sore throat. But a couple of weeks back, as you know, I offered some free coaching sessions as a gift to celebrate one year of this podcast. And over the last couple of weeks I've been getting to do those sessions with with you you who are listening, I mean, you know who you are. And can I just tell you, it has been the most special thing for me to be able to meet people who listen to this podcast in person, and then not only meet you see your faces, know your name and interact with you actually getting to help you and help you have a transformation just in one session. And that has been Yeah, a real gift to me. Even though I did it that I wanted to give a gift to you guys, it's been really special. And actually the highlight of my last couple of weeks. So I just wanted to mention that and say if you are one of those ladies who has had a session with me, you know who you are, it's, it's been really special. And I'm so grateful to have had that time with you. Alright, let's get into it. Today, I want to talk about debt. I did a Facebook Live, probably about a month ago now. And I talked about different aspects of debt. I called it how to make friends with debt and stop feeling anxious about it. And I really wanted to flesh it out for you here in an episode because I think debt is something that affects a lot of people negatively, and it doesn't need to. So I want to talk today about what it actually is and how to manage it. I want to talk to you about how to stop feeling anxious about debt, how to get out of debt, how to manage it, what is the actual cause of debt, right, because lots of us can get ourselves out of debt, we actually do it, but then get back into debt. And the reason for that is because we don't actually know why we're in debt in the first place. And I want to cover that because I think that's a really important point. And then finally, I want to have a bit of a chat about Is there such a thing as good debt and what actually is it? So the first point I want to cover is what is debt and and how to manage it. All right. So debt, all debt is, is it's just paying for money ahead of time.

Meaghan Smith  04:37

That's it, right? It's like buying it's like literally going to a shop and paying money for money. But instead of paying, you know $10 for a $10 note we have to pay a little bit extra for the convenience and the service of being able to use that money. So I think that's a really important point to get across. Because even know, you kind of I know you probably know this already, I think many of us forget that that's what debt is like when you use a credit card, all you're doing is you're just buying money ahead of time. Right? That's it. So often that looks like using a credit card for consumer purchases, or you can also borrow money from a bank like that you pay the bank interest. And you can take out loans for all sorts of things, as you know, you know, personal loans or car loan business loans for things such as property, you can even take out loans to buy shares, there's so many different ways we can use money that we buy, and people buy money for a lot of different reasons. And the people who sell us that money, make decisions themselves with their product, how much they're going to charge us for using that money. And that's what interest is, okay, so often, you'll find that having a credit card, we pay a premium for that we pay a premium for the convenience of having access to that all the time. Usually, interest rates on credit cards are much higher than, say an interest rate on a home loan. So that's what debt is, when we break it down to the actual facts, it's just buying money ahead of time. So this is really important to understand, if you want to stop feeling anxious about debt, or overwhelmed. When you separate the facts, from the drama, it's a lot easier to reduce feelings of anxiety or stress or worry about debt. And listen, if you do feel worried or stressed about debt, there's nothing wrong with you. And if you're in debt equally, there's nothing wrong with you and

Meaghan Smith  07:26

I have been there myself and I have literally had feelings of feeling like I'm gonna die from going into debt. I mean, I'm laughing about it. Because in hindsight, I have that perspective that I can laugh about it, but I know when you're in the thick of it, it can feel so real, like we're actually putting ourselves in danger for going into debt. Right? This is what our brain tells us, it says Warning Warning wrong, you're a bad person, you've done something wrong, you're gonna die get out of debt debts bad, warning, warning, right? This is this is what our brain does. But we, as humans have the capacity to actually think logically and use our prefrontal cortex to make decisions ahead of time. And one of the things that is really powerful to do is just separate the facts from the drama, okay, because the facts are, whatever the amount of debt you are in. That's the facts, right? So for example, you could have $10,000 worth of debt, you could have $100,000 worth of debt, or in my case, hundreds of thousands of dollars worth of debt, right. That's just the facts. And it's really easy to get hold of the facts just simply by looking at your statements and your bank accounts right. Now, they don't mean anything, that doesn't mean anything until we have thoughts about it and give it meaning. And here's what I mean by that. So like I just said, I have hundreds of thousands of dollars worth of debt. Right? And I don't feel bad about it at all. I actually feel great about it. And that's because this is investment debt that I've taken this debt on, intentionally, I want to have this debt because I'm growing a property portfolio. But I'm giving you this distinction, because equally, you know, somebody might have say, I don't know 1500 dollars worth of debt, or $15,000 worth of debt and be in an absolute panic about it, and feel very stressed about it. And I just want to point out that it's not the amount of debt. It's thoughts about the debt. All right, so debt can't make you feel anxious. Debt can't make you feel worried or concerned. It's only your thoughts about the debt that can cause you to feel negative emotion. And I can hear what you're saying, It's I can't but Megan, it's so true, I have $10,000 worth of consumer debt, you know, I've got this credit card debt, and I want to buy a house, and I'm never going to be able to buy a house, I'm never going to be able to get out of this debt, because I keep getting myself in thsi debt. All right, all thoughts. And we think that our thoughts are true. And we give them so much weight and so much meaning. And it's kind of easier to understand this intellectually. And I encourage you to actually apply this work, like the things that I teach you, because then you see it working in, in situ, so to speak. So when you are able to separate out what the facts are from your thoughts. That's when you create space for yourself. And that's when you can decide how you want to think about the debt. So for sure, you might be in $10,000 worth of credit card debt, but you can actually choose how you want to think about that. So you can be in a panic about it and have a lot of negative thoughts about it and a lot of negative thoughts about yourself for being in that debt. Right. That's totally available to you. And a lot of people go to that place. But it's also totally available to just think Yeah, that's right. I mean, $10,000 worth of debt. And now, I'm paying that off, or, yeah, I mean, $10,000 worth of debt. And that doesn't mean anything about me as a person, or my self worth, right. It really makes a difference how we think about debt, and really understanding in your bones, that debt can't make you feel anything. And this is the mistake that lots of us make, we think, because we have a certain amount of debt, we feel anxious or worried or concerned about it, but it's not actually the amount. It's just a thoughts about it. All right.

Meaghan Smith  12:23

Okay, so the next point I want to cover is how to get out of debt. All right, and I said in the Facebook Live, make friends with your debt. And I think that could be interpreted as a strange thing to say about debt. But what I mean by that is don't pretend it isn't a thing. be fully aware of it and intimate with your money. Like, seriously, how much time do you spend shopping for clothes? or shopping around for the best deal for a holiday? Right? Probably not that much time at the moment? situation? But I mean, in the past, how much time would you have spent comparing flights? You know, how much attention and time do you put into those things? Now, I know for me, sometimes I can literally spend hours like looking online, comparing prices, or equally like hours walking around in a shopping centre, trying to find the right item that I want. Now, imagine if you, if you spent that much time taking care of your debt and taking care of your money, right, you really want to be aware of it and embrace it, don't be afraid of it, right? Don't push it away or pretend that it's not there. Because you're only making it harder for yourself now, how we can manage that and actually pay it off. There's lots of different ways you can do it. I'm just going to mention one way to you today because I think it's a it's a great way to do it. If you've not living under a rock or especially if you're over in the Northern Hemisphere, you've probably heard of Dave Ramsey. Now, a lot of Dave Ramsey, you might be surprised to learn I don't actually agree with his whole philosophy of never being in debt. And I'll explain more later in the in the podcast what I think about that, but he has a concept that he coined the snowball effect for paying off debt. And that's basically if you're in debt, you list all of your debt, not from the highest interest rate to the lowest interest rate which would make logical sense right to pay off the debt with the highest interest rate first, but he suggests paying off the debt with the smallest amount first and then all the rest of the debt you just pay the minimum payments but get that smallest amount paid off first and then when you pay off that small amount of debt you have you snowball that so you put that money that you're paying off that first debt into the second debt, and so on until you pay all your debt off. That's a very brief explanation you get. I mean, Dave Ramsey talks about this all the time, I'm sure you can easily find out more about that if you just Google him the snowball effect. That's a really great way, in my opinion to mant. Like get rid of debt if that's what you're trying to do. But I think the most important thing when it comes to debt, is actually understanding and learning. Why are you in debt in the first place? Like what is the cause of debt? And one of the main causes of debt is simply overspending.Right? And

Meaghan Smith  15:54

I'd like you to think of overspending like over eating, it feels good in the moment. I'm certainly no stranger to over eating and feeling uncomfortable from eating too much, you know, more than my body needs. And there's a negative impact of that in the moment, where, you know, satisfied, it's like instant gratification, we're at a party or at a lunch, and there's this beautiful food, and we want to eat it. And we do and we eat more than we need. And then the negative consequence of that is we eat more fuel than our body needs, and we put on weight. And it's the same with spending, we overspend we spend more money than we actually have. Because we want that instant gratification. We want to have the item. Now, we don't want to wait for it. Right? This has to do with consumer debt here I'm talking about. So we want that instant gratification of having an item now. But there's a negative consequence for that, because we put ourselves in debt from doing that, right instead of saving and waiting to have it. Now, that doesn't mean that you should never go into debt. And also, I just want to be very clear that personal finance is personal. And you can do whatever you want, right. And my way isn't the best way. I'm just sharing my way because this is what works for me. Some people don't want to be in debt, they're afraid of debt, they think debt is really bad, and they don't want to ever be in debt. And, you know, good for you. That's fine. I'm not one of those people. I choose to not be afraid of debt. And I used it to move myself forward in life. And I want to explain that to you a bit more. But the first thing that I want to say is there's different types of debt. And buying things paying for money ahead of time to buy consumable items like clothes, or a new car. That sort of spending doesn't make sense to me, because you're borrowing money. So you're buying money ahead of time to buy an item that's only going to depreciate in value from the minute you buy it like clothes, or a handbag or whatever it is. And then not only that, you're also paying extra money on top to buy that thing. So in the long run, and I'm totally just pulling figures out of thin air here, but let's say you buy a $500 handbag and you put on credit, that handbag, by the time you pay interest on that $500 might end up costing you $800. Right. So that to me, seems batshit crazy. Why would you do that? I don't get that right in. I mean, I get why you would do it because you think having the handbag will make you feel better. And you want to feel good. And you want it now and you are responding to your primitive brain that's saying instinct gratification. I want that now, right? I get that. But when we sit back and think about what we're doing an act intentionally. That doesn't make sense to me. And would you

Meaghan Smith  19:35

would you do that if you really thought that through right how much buying that item is actually going to cost you. But then there's debt that you can buy, like getting a mortgage, for example, to live in a home. And for me, I see that as something that is an amazing way to buy money. I mean, you could save for 30 years to buy a home. Or you could borrow money and be living in that home right now and paying it off. Or you could borrow money and buy an investment property and have tenants in the property paying that property off for you. Now, to me that kind of debt, I don't see any problem with that sort of debt. Now, I know some people do. And I know some people are really like, Ah, don't get in debt. It's bad, it's bad. But I just want to put it out there that personally, I don't think there's good bad or good debt or bad debt, I just think that there's debt that doesn't make a lot of financial sense, like consumer debt, like the example I just gave from the handbag. And then there's debt that does make financial sense, like buying an investment property, that's going to make you money. That, to me, totally makes sense. And I've given the example before, about how earlier, like last year, I went, sorry, last year, at the end of last year, I went into debt, to do training, which has now enabled me to be able to make money during this pandemic. So with the career that I had, I would because of my I won't go into all the details, but because of the life circumstances we're in and where we're at, and I would not have been able to work. But because I chose to go into debt and not wait until I'd saved the full amount to pay for some training to get a qualification that I wanted. I am now able to work as a qualified life coach, and I'm bringing in money and have paying clients. And I wouldn't be making this money right now, if I hadn't have gone into debt last year to do this. So some, there's some people who would not do

Meaghan Smith  22:06

that. And that's okay. Like I'm not saying it's right or wrong. But I just want to give you this example to say, in this instance, going into debt in my life was a really positive experience. And let me just make it clear that positive in terms of the result of what has happened, I'm not some special unicorn, I had anxiety about going into debt when I did, but I did a lot of thought work around it and manage my thoughts because I had all these thoughts about, oh, I shouldn't be going into debt. But when I really examine them and thought about it, I decided that going into debt was going to have the best impact on my future self. So what I mean by that is yes, I was I had judgments and fears around going into the debt. But when I examine them, they weren't based on anything intentional that I had decided, it was just based on what society tells you and what I've just grown up thinking that debt is bad. But when I actually thought it through and realised Hang on a minute, I mean, hundreds of thousands of debt for my investment properties, and I don't have any problem with that. And so I was able to really think that through and and make a decision, how do I want to feel about paying for money ahead of time to get myself qualifications. And the conclusion I came to is that, I want to feel really good about that, because I'm buying money to do something for my future. And so, I want to point this out to you, because I know that it's a thing for some people that they won't do something in their life because they are afraid of being in debt. And they're very fearful of this thing called debt that they feel very anxious about and worried about. And what I want to offer to you is that nobody's going to make you get into debt. And I'm not suggesting that you should get into debt and especially like if you have feelings about it, that gives you a lot of unrest. But what I do want to offer to you is actually really explore what your thoughts are and make a decision intentionally because like I just said if I had just kept going and acting on past beliefs and past behaviours, I wouldn't have taken the leap and actually gone all in the start of this year and done this training this year. I would have waited right and you know, none of us have a crystal  ball about what's going to happen in the future. But it in hindsight, I can see that that was such an amazing decision for me to make. And I'm so glad that I did it right. And it's all paid off now, and that's all fine. But I might have held myself back because I was so afraid to go into debt. And that's just I guess what I want to highlight is that are you making a decision based on unintentional thoughts, or are you making an intentional decision based on how you want to think and feel about paying for money to use it ahead of time. And that can go both ways from when you go to pick up your credit card. And you're at the shopping centre, and you're making a purchase that wasn't planned for, to really think about that, like, Am I doing this from a place of being intentional, or am I just trying to make myself feel better? Because that's the final point that I wanted to talk about is that, basically, and this is kind of the secret to the universe, guys. So I really hope you hear this. We we do, everything we do or don't do is ultimately based on how we think we're going to feel. And you might not have heard some someone talk about that before. I mean, I've talked like this on the podcast and feel a longtime listener, you'll be familiar, but we do things because of how we think we're going to feel, that is why we buy stuff, because we think we are going to feel better after we have bought that thing, whatever it is, right? Or we buy things because we simply don't want to feel that urge, we feel an urge to buy something,

Meaghan Smith  26:53

you know, we're walking through the shopping centre, and we see something that we want, you know, our we walked past that the boost juice store, and suddenly we really need a boost juice, right. Whereas we weren't even thinking we needed one before we saw it. And then we respond. And this is why we overspend. Because we don't want to feel like we don't have an amazing looking house. Or we don't want to feel like we're not wearing the nicest clothes. I mean, whatever it is for you. But it's all based on how we think we're going to feel. And truly, if you can get a handle on that. And you can understand that you will not go into debt ever again. Because you will, you will see why you are motivated to buy something, and you will understand why it feels so important to spend money on that new set of pillows for your couch, that actually you'll do quite fine if you don't get that new set of pillows, right. And again, I just want to be clear, there's nothing wrong with spending money, we can buy things, we can buy things that we want. But just do it with intention and be on to yourself, why you are spending the money in the first place. And if you don't have the money, why do you feel that urge that need to go into debt? It's really important to ask you that question yourself that question because otherwise, you will pay off the debt and you will just repeat that cycle all the time. Or you'll be in this constant self beat up, you know, you'll constantly make yourself feel bad for ever being in debt, or paying off debt. Because it's just this ongoing battle. It's exactly the same with over eating. Right. Okay, so I hope that that has given you some different perspectives today on how to think about debt, how to manage it. The top points I think I'll just summarise with is understanding why you go into debt in the first place is so important. And separating the facts from the drama. Debt can't make you feel anything, it's only your thoughts about it that can make you feel anxiety or stressed. And if if you are struggling with that, and you don't understand how to do that, that is what a coach can help you with, right? That is what I can help with. I can help you manage that. And it's a lot easier to pay off debt when you're coming from a place of not being in fear and worry. Because when you're overwhelmed and fearful, usually we shut down. That's what we do. Like that's what our body does to protect us. And when you coming from that space, you're not going to be as creative or resourceful in paying off debt. Right. Okay. hope that's helped. That's all I've got for you today. As always, if you want to stay up to date with things, join my email list, I send out an email to you every week with everything that's happening. And the people on my email list are always the first to know and the ones that I'm always offering the good stuff to. So until next time, have a beautiful week. Bye Bye.

Episode references

Dave Ramsey website

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