Hello Travelers.
This installment of the newsletter we’re going to discuss debt - what it is and how to get out of it quickly.
Before getting started, let me make the legal disclaimer: I AM NOT A CERTIFIED FINANCIAL ANALYST. If you have questions about anything you read in this newsletter, please consult a financial analyst or certified financial professional.
Now that I have that out of the way….
If you’ve been reading my colleague Jessica Adams’ website, then you should know that for the next seven years, everyone on Earth is under the influence of Uranus in Taurus. What this has meant and will continue to mean for the duration of this transit, is that everything you thought you knew about money, finance, property and possession will be turned on its head. You needn’t allow this statement to frighten you. The smart person should look at this as an opportunity to change your relationship with money and debt. My hope is that after reading this 4-part series, you will do just that - analyze and rethink your relationship with all that the 2nd house of Taurus (in the natural horoscope) encompasses.
Financial Astrologer Gianni DiPoce (@gianni_dipoce over on Twitter) said during a presentation I attended, that “Money is debt. Period.” It is the way the financial system is designed. But if you ask others “what is debt?”, you’ll probably get many different answers and lots of advice. To avoid any confusion, I will attempt to breakdown what debt is, in simple terms that everyone can understand.
What Is Debt
The simple answer is owing money to someone for any reason. But there are also legalities.
The legal definition of debt:
“Debt is a financial liability or obligation owed by one person, the debtor, to another, the creditor.” In other words, debt is when someone borrows money (a debtor) and is responsible for paying back the person or company who loaned them that money (the creditor or lender).
What’s the difference between the types of debt?
A debt vs a loan:
Think of it like this - a tortoise is a turtle, but not ALL turtles are tortoises. In other words, a loan is a kind of debt, but not all debt comes in the form of a loan.
Types of Debt
When looking at the different types of debt, this means we are looking at how the debt works, i.e. - does the lender make you put up collateral (something they can take if you don’t pay)? Is the debt a one-time loan or an open line you can keep borrowing from?
Well, we now need a glossary to understand the different types of debt.
GLOSSARY
Secured Debt - With secured debt, you’re borrowing money that’s backed by a physical item. In other words, there’s collateral. It’s a lower risk for lenders because they either get your money in payments or they take back what you “bought” and sell it. So, if you have a car loan and stop making your payments, the lender will take back your car and sell it to get their money back.
Unsecured Debt
With unsecured debt, there is no collateral (no physical item). Credit card debt, for example, is unsecured debt. This type of debt is riskier for lenders since there isn’t anything they can take if you don’t pay—so unsecured debt often has higher interest rates to cover the lenders’ backs.
Revolving Debt
Revolving debt is an open line of credit (like a credit card or store credit card). You might have a set borrowing limit (called a credit limit), but if you make the minimum payment on time, you can keep borrowing and spending. But if that’s all you pay each month, you’ll have to worry about interest.
Non-revolving Debt
A non-revolving debt is when you take out one lump sum (like a mortgage) and agree to an interest rate and repayment plan.
Sneaky Debt
It would be just plain wrong not to mention sneaky debt. These are things you could pay cash for but you’re encouraged to finance instead—like buy now, pay later installment plans or anything a salesperson says you can take home today and pay off some other time. They might use words like “blah blah days same as cash” or “zero percent APR.”
It’s sneaky because it feels like a normal way to pay - IN THE MOMEMT. But remember, debt is owning any money to anybody for any reason. If you take something home now that you’ve promised to pay for over time, that’s debt.
Important Note: Some debts can fit into more than just one type. For example, you can have a secured, non-revolving debt like a mortgage. (I will explain that more in a separate post about mortgages.)
Now we need to understand the difference between the types of debt and the forms of debt. And because debt comes in all shapes, sizes and amounts, here are some of the most common forms of debt:
COMMON FORMS OF DEBT:
(Depending on your country and the financial rules and regulations, this may differ so please do your homework on how the forms of debt are setup in your country)
Credit Card Debt
Basic Definition: A credit card is piece of plastic (or metal, if it’s fancy) that allows the cardholder to borrow money to pay for stuff. Credit card debt happens when the cardholder doesn’t pay off the total amount they charged to the card at the end of the month. At that point, the cardholder owes the remaining balance, plus interest.
Usage: Credit cards are pretty common. Doing some research, Here in America, eight in 10 Americans have a credit card - so credit card debt? VERY common. Altogether, 45% of Americans share a total of approximately $804 billion in credit card debt.
Debt Type/Form: Credit cards fall under the revolving and unsecured debt types because a person can keep borrowing (as long as they’re paying the minimum payment and not maxing out their credit limit), and the lender doesn’t have an actual item they can take back from the cardholder if they stop making payments. That’s one reason a lender looks at a person’s income and credit score before setting a specific credit limit. Anyone who seems risky will be allowed to borrow less or pay higher interest rates.
Interest: One key part of credit cards is the interest, or the fee credit card companies charge to use their services. The average APR (annual percentage rate) on credit cards is 17.13% (as of winter 2021). But this has now gone up since the Federal Reserve has made two interest hikes. The Federal Reserve is poised to make third hike soon.
Let’s do some math on that. If you multiply 17.13% by the $787 billion Americans owe, that’s about $134.81 billion credit card companies will make on interest alone. So, this kind of debt isn’t just common, it’s super profitable—for the credit card companies.
Student Loans
Basic Definition: A student loan is money borrowed to cover higher education costs.
Usage: Student loans are the fastest growing debt in America. As of winter 2021, the federal student loan debt total in America is 1.58 trillion. Yes, trillion. The majority of students - 69% - leave school with at least some student loan debt.
Debt Type: Student loans can be private or federal, and both are unsecured, non-revolving debt. Of course, there are penalties for defaulting (or not paying) on your student loans, but no one comes and repossesses your degree. It’s non-revolving because, even though someone can take out multiple student loans, each one is a one-time loan for a specific purpose.
Interest: Interest rates vary a ton depending on what kind of student loan you’re talking about, but the average student loan interest rate is 5.8%.
That might not seem like a lot, until you realize the average borrower has $38,792 - or more - in student loans and it takes 20 years to pay that off.
A quick run of those numbers through a Student Loan Calculator shows that “not a lot” 5.8% turns into $26,936.89 paid in interest alone over those 20 years. I think we can all agree: That is a lot.
Auto Loans
Basic Definition: A car loan is money someone borrows to purchase a car.
And Americans L-O-V-E their cars.
Usage: American auto loan debt is at $1.44 trillion with an average of $31,758 per household (winter 2021).
Debt Type: Auto loans are non-revolving, secured debt because it’s one lump loan, and the car acts as collateral. If you don’t make payments on the car, goodbye, car. The lender can take it back, sell it cheap at auction, and sue you for the difference. Yes, really.
Interest: The average interest rate for a new car is 4.09% and 8.66% for a used car.
Running those numbers through a Car Payment Calculator. If you bought a $31,142 used car at the 8.66% interest rate with a 60-month auto loan, you’d end up paying $7,338 just in interest. Ridiculous.
Personal Loans
Basic Definition: Personal loans are a lump sum borrowed from a bank, credit union, or online lender.
Usage: This kind of debt is often used to cover a specific expense or in a (risky) attempt at debt consolidation. In other words, sometimes people take out a personal loan to pay off other loans. Hmm.
Twenty-two percent (22%) of American adults have a personal loan and owe an average of $16,458.15
Debt Type: Personal loans are non-revolving debt, but they can be secured or unsecured. It all depends on the loan terms, which are whatever the lender wants them to be.
Interest: Interest rates on personal loans can vary based on how reliable the lender thinks the borrower will be. If a person is considered a higher risk of not paying back their debt, they’ll get slapped with a higher interest rate.
Now, if we go back to what Gianni DiPoce says - ‘money is debt’, there’s another type of debt that we all must deal with that doesn’t even seem like debt. If you have an electric or water bill, then you are in debt to those entities that provide you those services as each month, they extend you “credit” to use those services. At the end each billing cycle you are then required to pay the amount owed.
Don’t pay it, and your lights and water will be disconnected.
So you see, it behooves the smart person to understand where each and every dollar goes and why. As we continue to move through the Uranus in Taurus transit, there will be more shocks and upsets surrounding our finances, savings and property. I say there’s no time like the present to get a plan and start working it so that we will be able to “ride out” any upsets or falls and give ourselves a bit of “cushion” when the upsets and falls occur.
Almost everyone I know is living off their credit cards. Everything we as humans need to live and work - food, clothing, shelter, heating & electric, water, gasoline to power our cars, baby items, personal hygeine items - have all increased in price. It is costing us more to live. So for this reason - now and over the next seven years - it is imperative that we get a handle on where our money is going and why.
The 2nd house of Taurus in the natural horoscope is not just about finances. It is also about values and value systems. During this transit, we are being presented with an opportunity to reevaluate what is more important in our lives, the quality of our lives and how we choose to live our lives.
COMING UP:
Part 2 of this series, we will look at mortgages.
Over on my website, there will be Part 3 of this series, where we look at a system for getting your debt under control. Along with part 4 of this series and we’ll look at ways to find “find free money.”
Parts 3 and 4 will free articles. So head on over to Twitter to follow me so that you can get notified of when these articles post.
@hltPsychiClktve is where you’ll find me.
If this article meant something to you and you learned something from it, I urge you to please share it with others.
Until next time…
Be Good To Yourselves.
Tara, xx
Hello Tara,
Thank you so much for your article about debt. I have been working on my debt for many years, and now I am faced with the challenge of a high debt I would like to bring down. I look forward to being part of the conversation around debt.
Thank you Tara for your quick response to my comment. I work hard to make money. I would not mind working hard to get out of debt.