11/09/2026
What is debt?
WHAT IS DEBT, AND HOW CAN I MANAGE IT OR GET OUT OF IT?
Debt is defined differently, but let’s keep it simple.
Debt is simply borrowed money.
It creates a financial obligation to repay the principal, plus interest, within an agreed period. In many contexts, it is simply called a loan.
Many people are afraid of debt and speak negatively about it, but let me tell you this:
Debt is not inherently bad.
In corporate finance, debt is an important source of capital and, in many cases, can be cheaper than equity.
Successful businesses use debt strategically to acquire assets, expand operations, increase production, finance working capital, undertake opportunities and grow.
When used prudently, debt can generate income and build wealth.
But when debt is used to finance lifestyle expenses or consumption, it can quickly become a financial burden.
The problem is not necessarily debt. It is how you use it.
There are also circumstances beyond our control that can disrupt even the best-laid repayment plan, such as floods, droughts, policy changes, economic downturns or sudden market shifts.
When that happens, don’t despair, but act.
BEFORE TAKING ON DEBT, ALWAYS:
1. Have a clear plan.
Know what you are borrowing for, how the money will be used and how the debt will be repaid.
2. Understand the true cost.
Look beyond the interest rate and understand the interest, fees, tenure, repayment schedule and penalties.
3. Borrow less than you qualify for.
What a lender is willing to give you is not necessarily what you can afford.
Don’t go for the maximum. Go for what is enough for your plan or purpose.
IF YOU ARE ALREADY STRUGGLING WITH DEBT, DON’T DESPAIR. DO THIS INSTEAD:
1. Face the numbers.
Clarity reduces fear.
Get your loan statements from your bank or lender. Know your outstanding balance.
You can’t fix what you refuse to face.
2. Stop the bleeding.
Stop taking new debt to solve old debt. Cut unnecessary expenses and reduce lifestyle spending.
Don’t keep borrowing from Paul to pay Peter.
Instead, speak to Peter. Explain your situation and negotiate where possible. Ask for more time, revised repayments or debt restructuring.
3. Clear high-cost debt first.
If you have extra income available for repayment, prioritise the debt with the highest effective cost while maintaining the required payments on the others.
It may feel difficult, but it can save you money in the long run.
4. Increase your income.
A debt crisis is not the time to sit back.
Work more, start a side hustle, sell unused items or find legitimate ways to increase your income, then direct the extra cash towards the debt.
5. Fix the behaviour.
Sometimes debt problems are not only circumstantial. Oftentimes, they are behavioural.
If emotional spending, poor budgeting or lifestyle pressure got you into debt, change those habits.
Otherwise, you may clear the debt today and create another one tomorrow.
Listen:
Debt is a powerful financial tool, but it demands discipline.
Understand it. Respect it. And always use it prudently.
MDavies Insights
