Debt! It makes the unaffordable affordable but…..(what the banks don’t want you to know)

The Debt Trap Funnel

Debt is often seen as a tool to make the unaffordable affordable. Want a new car but don’t have the cash? Get finance. Eyeing off that dream home, a mortgage is the answer. Need a quick vacation? There’s always a credit card for that. On the surface, debt can seem like a helpful way to get what you want now, instead of waiting. But there’s a side to debt that banks don’t want you to dwell on: the longer you stay in debt, the more money they make and the harder it is for you to achieve true financial certainty.

Banks Make Money By Keeping You in Debt

It’s no secret that banks are in the business of making money, and their number one strategy for doing so is keeping people in debt. From personal loans and credit cards to mortgages and car loans, every form of debt comes with interest and that’s where banks rake in their profits. The longer it takes you to pay off your debt, the more interest they collect.

This is why banks are more than happy to extend payment terms, offering lower monthly payments or even “interest-only” options. It sounds like they’re doing you a favour, but in reality, they’re ensuring you stay in debt longer and pay them more over time. Banks are not incentivised to help you get out of debt quickly. Instead, they profit from keeping you trapped in a cycle where you owe them money month after month, year after year.

Debt Creates an Illusion of Affordability

Debt makes the unaffordable seem affordable. When you take out a loan, at the risk of stating the obvious, you're not really buying something outright; you’re just delaying the full cost and adding interest on top. The bank may help you buy the car, house, or vacation today, but you’ll end up paying much more for it in the long run. This is how debt tricks people into thinking they can afford something when, in reality, they’re setting themselves up for years of payments and accumulating interest.

Let’s say you take out a $300,000 mortgage at 4% interest over 30 years. By the time you pay off the loan, you’ll have shelled out over $500,000. The same principle applies to credit cards and other loans. The upfront convenience of debt hides the long-term costs, which is exactly what banks want.

Financial Certainty: The Power of Being Debt-Free

When it comes to financial certainty, there’s one undeniable truth: if you don’t owe anyone anything, no one can take anything from you. Achieving debt-free status is the ultimate form of financial security. It means you have full control over your money, your assets, and your future.

As long as you’re in debt, someone else has a claim on your life. Whether it’s a mortgage lender, a credit card company, or a car loan provider, debt means part of your income is promised to someone else before you even see it. This creates a constant financial pressure that limits your ability to save, invest, or spend as you see fit. In contrast, being debt-free means every dollar you earn stays in your pocket, giving you true financial certainty and peace of mind.

Debt and Risk: What the Banks Don’t Want You to Know

Banks rarely emphasise the fact that being in debt increases your financial risk. If you’re carrying significant debt and something happens like a job loss, medical emergency, or economic downturn you may find yourself in a precarious situation. Your income might dry up, but your debt obligations remain. Miss a few payments, and suddenly the roof over your head could be threatened, your car repossessed, or your credit rating destroyed.

On the flip side, when you’re debt-free, these risks are greatly reduced. If you don’t owe anyone money, you’re not reliant on a steady income to meet monthly payments. You can weather financial storms much more easily because you don’t have the looming threat of creditors hanging over you. Banks don’t highlight this reality because it runs counter to their business model. The longer you stay in debt, the more vulnerable you are but also the more profitable you are for them.

The Road to Financial Certainty

So how do you break free from the debt trap and achieve true financial certainty? It starts by shifting your mindset away from debt as a solution to life’s expenses. Instead of relying on loans and credit cards to buy things you “can’t afford,” focus on living within your means and saving for future purchases. Here are some steps to help you achieve this:

1. Prioritise Paying Off Debt: Start by tackling your smallest debt first, such as credit cards or personal loans. The faster you pay off these obligations, the more you will be able to re direct to paying off the larger debts, and the quicker you’ll free yourself from debt’s hold.  (Do not consolidate debt unless its an absolute last resort.  All this does is make unaffordable debts slightly less unaffordable, it does nothing to change what got you into the situation in the first place.)

2. Avoid Taking on New Debt: Before making a purchase, ask yourself if you can afford it without borrowing. If the answer is no, consider waiting until you can save up for it.

3. Build a Safety Net: Once you’ve got debt under control, focus on building a Murphy Fund that can cover 6 months of living expenses. This will help you avoid falling back into debt if an unexpected financial challenge arises.

4. Invest in Your Future: With debt out of the way, you can start focusing on wealth-building strategies like investing and saving for retirement. This is where true financial certainty comes from knowing you’re secure, no matter what happens.

Conclusion: Debt Isn’t the Answer

Debt may make the unaffordable seem affordable, but the truth is that it often costs you far more in the long run. Banks profit by keeping you in debt, and the longer you owe, the more you pay. True financial certainty comes from being debt-free, where no one can lay claim to your hard-earned money or assets. By focusing on reducing and avoiding “lifestyle” or non-deductible debt, you can take control of your financial future and live with confidence and peace of mind.