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Why Paying Off Your Debt can Keep You Poor

ArticleID 158  
Writer Isaac Thuku
Category Personal Article
Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Debt can be a thorn that you may not be able to get rid off that easy. As much as it helped you when you needed it, paying it off may drive you into a poverty stricken state or worse into bankruptcy if you are not careful. While getting a loan can give you what you want for the time being, why is it that it can keep you poor?

A debt will normally come with an attached interest rate. This means that there will always be an increment to the outstanding amount you initially borrowed. At the time at which you borrowed the amount, for whatever reason, you did not put into consideration that the longer you take to pay back the more the amount you would end up paying. People feel like it is not too much as the amount is spread over months or even years. The effect here is that you will always have a constant outlet for money.

Looking at a debt that is being paid back is like making a payment every month or as agreed yet the outlet does not generate any amount of income. It therefore serves as a long term demand for money. In the first place, you took the loan because your current income could not support the demand in question. You can now imagine having a cut every month from the same source of income. What was not enough becomes even less.

In turn, you are more likely to get into another loan in an effort to try and meet your basic requirements. What started as a cry for help seems to grow into a bigger problem. You started off with one loan but because your source of income can barely sustain you, you get pushed into taking another. One source of income becomes an outlet for more than just the basic needs but also two other loans. If not addressed, the pressure becomes too much and in an effort to clear the loans you may end up selling some of your household items to try and raise money to pay back.

Also, getting into a debt for reasons of comfort or leisure will get you into a state where you are bound to have difficulties in paying it back. The reason behind this is that the source of output does not generate an income and the repayment still comes from the initial source of income. Similarly, the strain becomes too much and you end up spending years trying to repay a loan. A loan which is used to make an investment would be more advisable. This is because, the purpose of the loan would serve to payback its debt without having to chip more into your original source of income.

As long as you will be paying off debt from your source of income, you will discover that it is more likely to keep you poor as it becomes a source of outlet without a source of input. It becomes difficult to fill a bucket of water that has one hole for tapping in water and has two similar sized holes that are draining out the water.

Why Paying Off Your Debt can Keep You Poor
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