You Can't Borrow Your Way Out Of Debt

May 26, 2017



Now I know what you're thinking. That’s blatantly obvious. Why on earth are you listening to something so crazy? Well, that's because while we might all know it, the reality is most of us do it. And that's what I want to talk about today. 

Now if we think about what it's like living in the 21st century, almost everything that most of us buy is on credit in one form or another. Sometimes, we don't even realize it. It could be something like a brand new mobile phone and you're just paying a monthly fee, but actually it's on a two-year contract. You're buying that phone on credit. It could be buying a new TV and you're going to pay for over six months. That is on credit. It could be that you have loans and credit cards and you take out another small loan. Well, of course, that's obviously credit even if you just think you're going to pay it back straight away. Taking a payday loan for example, you might borrow that for two weeks and intend to pay back in two weeks. But the reality is you're borrowing money to try and get out of debt. And quite often, when it comes to two weeks’ time, you won't have the money to pay it back. 

I know what this is like. I was in this situation about 20 years ago. I was a young guy. I had a good job. I was working in London as an accountant. It was my first job. I had a great life. I was earning a decent wage and went out quite a lot. I had good fun with my friends. And I wanted to have all the stuff my friends had. All that nice stuff. And it all went on the credit card. I got to a stage that my credit card debts got quite high. And I kind of thought this isn't sustainable. In particular, when I looked at the bank statements and saw how much I was paying in debt repayments I thought, "Hmm. I'm struggling a bit here. I need to do something about it." 

So what did I do? I took out a debt consolidation loan, I borrowed more money to pay off those credit cards. So I had actually tried to borrow my way out of debt. Now, on the one hand, you might think, "Actually, Paul, that wasn't a stupid idea because you borrowed some money at a low interest rate to pay off money borrowed at a higher rate, as well as arranging a reduced monthly payment. So actually, that's good, Paul, isn't it?"

Well, kind of. But the reality is, if you were like me, like many people who I've worked with, what happened next was quite scary. Because I'd managed to pay off those credit cards I went out and I treated myself. I thought, "Paul, you've done a good job here. You’ve sorted your money out. So I'm going to go and treat myself to something”.  So what did I buy? A new Walkman. And I put the cost of that walkman on my credit card and then I started using the credit card again.

In the space of a few months I ended up with not only the loan, but my credit card debts as well. And that's the problem with trying to borrow your way out of debt. However good your intentions are at the time, the chances of you actually reducing your debts by doing that are almost none. In fact, the reality is you're probably going to start racking up even higher debts.

If you're in debt right now, I want you to stop. Just stop. Take a deep breath. And I want you to do one thing for me. I want you to make a commitment to yourself. I want you to say to yourself:

For today, and for today only, I'm not going to borrow another penny.

I don't care how you do it, but I just want you to do it for today. Don't worry about what's going to happen tomorrow or the day after or next week or next month. If you can commit to yourself, just for today, not to borrow another penny, whether that be buying something on a credit card or borrowing a fiver from a friend, whatever. Do whatever you have to not to borrow one more penny today and just for today. You will transform your finances.

Think about it. That commitment is quite small, isn't it? I think most of us if we try could commit not to borrowing another penny just for today. But if you manage to do that today and then make that commitment tomorrow, and the day after, and the day after, something very powerful is going to happen. And that is this huge debt hole that you're in, all of a sudden, it's going to stop growing. The hole is going to be the same size. And actually, even better, once you've brought yourself that breathing space, you can then start to look at how you're spending the money and come up with a plan to actually start reducing that debt.

The problem is if you start trying to pay off your debt while you're still racking it up, you're never going to get there. You’re on a hiding to nothing. But by making that one small commitment to yourself, not to borrow another penny just for today, you're doing a really powerful thing. And in the longer-term, it's going to transform not only your finances but it's going to transform your mentality when you're out shopping. You’ll come to see things in a different way and you're going to learn to appreciate the value of things, so that you’ll eventually find it easier to say ‘no’ to buying the things that we all know you shouldn't. 

 So make that one small commitment for me, just for today, and you'll be surprised at the difference it's going to make.


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