Being in debt can create an element of fear if you are worried about not being able to keep up with your monthly payments.
I can relate. I was once asked what my biggest fear was. My immediate answer – not being able to repay my debt.
This fear was one of my many money blocks and it wasn't rational. I was hyper-vigilant about paying off my credit cards in advance. I loved the dopamine hit I got from transferring any amount from my current account to my credit card. Sometimes I would do it daily!
When I bought my first car at 20, I needed a loan to pay for it. I was fixated on paying it off as early as possible. I would constantly play with a loan repayment calculator, running scenarios on the effect that extra payments would have on the interest and loan term. I vividly remember the sense of relief and achievement I felt when I paid it off early.
I was obsessed with knowing exactly what I owed at all times, what my instalments were and calculating when I thought I could be debt-free.
I had a stable, reliable and relatively well-paid job and could easily afford the instalments. Yet, having that loan held me back in so many ways as every extra cent available to me was assigned to paying it off.
How did I clear this particular money block? Awareness of its existence and the negative impact on my mental and financial health was key.
I looked back to why I felt this way about debt. I am sure it is no surprise to hear it was rooted in childhood experiences.
But awareness was not enough to move me forward. The partner of awareness is clarity. Without clarity, we make uninformed decisions.
I find our brains tend to either rose-tint financial situations or only see them through doom and gloom and worst-case scenarios. Both views often result in a lack of action.
Gaining clarity on your financial situation is the best way to remove those biases you may have placed on your situation so you can finally start achieving your financial goals.
I recently worked with two people who were tired of being in debt. They wanted help to find a way out of the cycle of debt and living from pay-cheque to pay-cheque because of it.
One client told me her debt was Dh115,000. According to her online banking statements, she had various credit cards and a personal loan. Unfortunately, that was not the full story of her situation.
When I reviewed her financials, I found buy-now-pay-later arrangements and several credit card conversion loans. When we added on the balances outstanding on these credit lines, her debt was closer to Dh220,000.
It was a significant leap and a real shock to her. She knew these things existed but as the balances are not listed anywhere on her banking portals, she did not consider them as part of her outstanding debt.
She admitted she did not understand them, how they work or how much she was paying for them. She does not receive loan statements. It is as if they do not exist. She is not alone in this.
Already this month, I have spoken to two people in a similar situation. And they were not the first two either.
Both remembered a sales representative strongly advising them to take out credit card conversion loans. They were told the loans were a good financial move for them. The agents convinced them it would help them financially.
Neither person was told about interest rates, administration charges, default penalties or even the basic mechanics of how they operate. There was no paper trail or signed documents to review.
They are similar to ghost loans, hiding outside our view only to pop up on your credit card every month to give you a financial fright and keep you confused as to why you are not on top of the situation financially.
This type of credit line helps to keep heads firmly in the sand. It allows people to spend outside their means, often even encouraging it. The interest rates are high. I have seen one with an annual percentage rate of 92 per cent!
The instalments are charged to your credit card, so the bank often double-dips by charging interest on the loan, while also earning interest on the instalment amount if you do not pay your credit card balance in full every month.
It is a vicious trap for uninformed and trusting customers.
It is important to remember that financial clarity is your superpower. We measure what we can see. Or said another way, what is measured gets done.
How can you plan to pay off a debt that hides in the shadows and yet never seems to go away? Bring it out of the shadows and into the light, that is how.
Do you know the full extent of your debt?
Carol Glynn is the founder of Conscious Finance Coaching