The Essential Guide to

Understanding Debt.
This short course has been created by Paycurve
for its loyal customers. The first step to proactively
managing your finances and making your money
work harder for you is being equipped with the
right knowledge.

Introduction What is Debt?

Debt can be a tricky thing to understand for most
people. However, simply knowing the basics can
help you stay out of financial trouble and make
sure your money is working for you in the best
way possible.
Taking on debt is a part of life for the vast majority
of us, so arming yourself with the right tools on
how to handle it will make it work for you and not
be the burden it is for so many people.
The first step is understanding it, which is what
this short course sets out to do:
Debt is money you borrow from a lender such as
a bank that you will ultimately have to pay back.
Debt can take on a few different forms such as
credit cards or short-term loans. The important
thing to understand is that not all debt is bad
- there is good debt and there is bad debt.
However, this is if you know how to navigate it
safely and stay clear of harmful pitfalls that create
problems down the road.
What is Good Debt?
Good debt is money you borrow in order to build wealth or to increase your income over time.

For example, if you want to buy a house, you will take out a mortgage bond whereby the bank will lend
you money at a low-interest rate over an extended period of time. Once you finish paying off the bond,
you will own an asset which will enhance your wealth. Another example is taking out debt to buy a
motor vehicle in order to run a delivery business whereby you will earn income.

The key to harnessing good debt is making sure you can afford to take on the debt in the first place. This
means you have enough money to repay the debt instalments each month. If your instalments are too
high then this will place you under financial stress which has the ability to negatively impact many areas
of your life. If you miss a loan repayment because then you will be charged more fees in the form of
arrears interest and penalty fees.

There are many providers of debt in the market and therefore it always helps to put in the extra time and
do the research in order to shop around to get the best rates possible.

What is Bad Debt?

Simply put, bad debt is debt incurred to purchase things that don’t have any underlying value and
that don’t help you generate income.

This form of debt does not build any wealth and is often very expensive.

For example, using a credit card or taking out a payday loan for entertainment purposes or to buy a luxury
item you don’t need.

Good vs bad Debt

Good Debt Bad Debt

Property Holidays

Vehicle
VS Clothes

Business Expensive
Electronics
How is a Debt Spiral Created?
Understanding the debt spiral is critical to knowing how to be safe when borrowing money. Ultimately,
understanding it will help you avoid the most common way people get stuck in debt for much longer
than they need to.

Spending more money than you earn is the first (mis)step down a slippery slope. Since all borrowed
money contains interest and fees that you need to pay back, it’s very easy to get stuck in a perpetual
and destructive cycle where the amount you owe continues to grow but your earnings stay the same.

How to Avoid Debt

Budget. Budget. Research before Think Investment. Save. Don’t

Budget. you shop. Think Long-term. borrow.
Budgeting is the skill When shopping Ask yourself these two If you do want to
to be mastered when around for loan questions: purchase a so-called
it comes to avoiding products, it’s critical to 1. Are the funds “luxury” item then
debt. A clear budgeting pick an option that you being borrowed to rather use your saved
strategy for your home can comfortably afford build wealth or money or your salary.
also helps you to pay off monthly so 2. Generate income. Try not to borrow for
manage your good that it doesn’t become If you answer no to this kind of spend.
debt so it never an added stress to your both questions then
becomes a burden to life. stay clear from
your day-to-day life. entering a debt
arrangement.
How to Climb Out of Debt
If you find yourself in a position where your debt is overwhelming, it’s important to put a plan in place and
stick with it in order to make the whole process a lot more manageable and stress-free.

Strategy 1.
Pay more than the
minimum amounts.
The first and most important strategy to use
when trying to beat your debt is by paying more
than the minimum that is required. The thinking
here is simple, the more you pay off the faster
your debt will disappear. While this may involve
cutting other costs and expenses in your life, it’s
worth the sacrifice in order to become debt-free.
Strategy 2.
The snowball
method.
The snowball method is also a good strategy to
use if you’ve got a number of debts to tackle. With
this approach, you would focus all your energy
paying off the smallest debt you have before
moving on to the next. This will get you into a
positive habit and mindset. Ultimately, it fosters
the momentum to get you (and your hard-earned
money) moving in the right
direction.

Strategy 3.
Consolidation.
Consolidating high-interest cost debt can be
effective at clearing the burden in a much more
simple and manageable way. One central loan
can be less overwhelming to address on a
monthly basis and you have one point of contact
instead of many.
Strategy 4.
Proactively increase
your income.
Can you make an extra source of income that
could help you pay off your debts? If you’re in a
position where you can make other sources of
income, it could be a sound way to pay off your
debt and possibly leave you with savings. Of
course, going hand-in-hand with this strategy
would be to cut costs and expenses.
Every bit helps when it comes to increasing the
potential of your repayment amounts.
You can use a combination of the above strategies
which will further fast track your repayments and
recovery.

Do Not...
Borrow more money to pay off other debts.

Borrowing more money to settle existing debt is a very dangerous activity

that has a high likelihood of making the problem worse. Doing this is very
costly and this is who many people enter the debt spiral.
Conclusion
Borrowing money and taking on debt is overwhelming, daunting and sometimes dangerous. But when
approached with the right mindset and for the right reasons you can turn it into something that is
productive and ultimately valuable to your wealth and family.

Remember to only borrow when necessary. Use debt only for wealth creation or income creation and
manage your hard-earned money responsibly by knowing the pitfalls to avoid.

This reading material was brought to you by Paycurve. We hope this information empowers you to make
the right choices for your financial freedom & responsibility.

Disclaimer: The ebook contains information about debt management. However, the information is not financial advice. You must not rely on the
information in the ebook as an alternative to financial OR debt management advice from an appropriately qualified professional. If you have any
specific questions about any such matter you should consult an appropriately qualified professional. You should never delay seeking legal or financial
advice, disregard financial advice, or commence or discontinue any debt management action because of information in the ebook.

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