$40K in Debt so what difference does another $1000 make?

Generally my thinking is that when you’re in a debt hole that you should stop digging and look up. Sometimes I hear people say something like “I’ve already got $40k in debt so what difference will another $1000 make? If I can emotionally handle $40K of debt then $41K isn’t going to be too much more difficult”. Fair enough you might think.

When your debt gets to such a large amount the difference an additional $1000 makes is small. I suppose you can think of all debt as relative. If you had an existing $1000 in debt then an additional $1000 would effectively be a 100% increase or a doubling of your debt. Whereas an additional $1000 when you already have $40,000 in debt is only going to increase your debt by 2.5%.

But to deal in percentages of debt increase is simply a wasted exercise and is avoiding the real point. In the end the percentage increase is not important if you don’t have the cash flow to meet the repayments.

Can I meet my debt repayment obligations in the long term if I take on more debt?

This is the key question that anyone who is considering taking on more debt now should be asking themselves. If you are struggling with debt now then how will you manage in six months time?

Too often I have heard stories of people getting too comfortable with their debt and letting themselves slip into debt oblivion. They grow so comfortable with the idea of debt that it seems like the easiest option is to take on more debt rather than acquire the discipline and work ethic necessary to save and earn.

But I don’t want to lump everyone into the same category so the question that has to be asked is.

Why more debt?

I suppose the other very important consideration is why would anyone want to take on more debt if they are already $40k in debt? If someone is frivolously spending an additional $1000 on clothes or the latest gadget or a holiday then the question has to be asked is why? Why more consumer spending?

That said if someone is taking on more debt to pay for healthcare or education then you can see the logic behind it.

So you can see from the two examples why taking on additional $1000 of debt is necessary in one case and totally unnecessary in another case.

The difference between the two types of spending

In the frivolous spending scenario that person is way too comfortable with their debt. The end result is debt oblivion or more commonly known as bankruptcy. The problem isn’t debt per se; the problem goes much deeper and relates to psychological issues rather than financial ones. The financial situation is the end result, debt is a symptom rather than the cause of the problem. The problem is probably caused by some deep rooted emotional issues. I honestly don’t know but I know that a psychologist would probably have a lot to say about it.

In the necessary spending scenario the debt can be justified but that person also has to ask how the debt arrived and why is it still building up? In the case where the debt is being used to further education or to pay medical bills then the argument can be made that it is in effect a kind of “Good Debt”. (Good debt in itself is an elusive concept and one that deserves and entire article of its own which will follow soon.)

The difference an additional $1000 will make to your debt

The difference to me is one of need versus want. Do you want the latest gadget or do you need the latest gadget? If you allow yourself to be duped into believing the flawed logic of relative debt size as I outline at the start of this article then you have a problem. The chances are that you have become too comfortable with your debt and you need to scare yourself into action about your debt.

Debt is debt and only in the more positive or extreme circumstances can it ever be justified. The two simple questions you should as yourself when considering taking on more debt are:

Can I afford the additional repayments in the long term?

Does the thing that I am using the debt for add value to my life?

If you can answer yes to both of these questions then you may be able to justify taking on more debt. If you have any doubts about your answer to either of these questions then you need to seriously reconsider taking on the debt.

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