I’m not sure if it is possible to go through life without debt but it would be extremely challenging. A person’s introduction to debt will typically start with tertiary education, needing to get a student loan to further study and or get occupational training.
During this time banks are more than eager to add further debt, many offering overdrafts and credit cards as part of a student banking package. So by the end of student life, many will have student loans, overdrafts and credit cards. At this point you can now get a ‘graduate banking package’ where a personal loan can now be added to the overdraft and credit card.
It’s like a ‘gateway’ to debt. By the time you are in a position for full time work you are accustomed to debt and probably not fazed by it. This would strongly play into a bank’s hands, as being accustomed to debt you will readily accept taking on more, and this will likely lead to a mortgage for hundreds of thousands of dollars. Being used to debt may also mean you approach it as inevitable and take on the usual mortgage payments, which will likely mean a 30 year term. Such a long term will leave you paying more in interest than the amount you actually borrowed.
Understand that having debt with a lender is typically highly profitable for that institution and that the default setup of that debt will be not in your favour but the institution. However it does not have to be that way. For example with a mortgage there is no reason a person cannot pay off a mortgage in 20 years instead of 30 years with the correct structure. Add in a bit of discipline to the structure and you could be looking at 15 years, not 30.
Much like a drug habit, a debt habit does you no good. While debt may be unavoidable how you handle is not and can be the difference between having debt all your working life or for a far shorter, and cheaper, timeframe.
The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans.