AS banks roll out post-Melissa moratoriums on loans and credit cards, consumers are being handed a rare opportunity to regroup before debt pressures return. The moment has renewed calls for better debt management, a theme echoed at Learn, Grow, Invest’s Faith, Focus and Finances conference on Saturday.

Money coach Charlene Tilbanie, whose focus is on debt clearance, underscored the importance of understanding how to use debt responsibly and without sacrificing personal well-being.

“Fifteen years ago, I had no peace,” she confessed. “Money stress and I were best friends, and if you have been in that situation, or are currently in this situation, you would know that money stress is not the type of friend that you want.”

The coach, who struggled to repay her debt for years, managed to clear it in 15 months and shared the strategies behind the freedom she now feels, which starts with recognising one’s own shortcomings.

“The debt was not the problem; the root of my problem was poor management of money,” she said.

Tilbanie said that without a plan for your money, “you borrow all over the place”, and with that comes a loss of peace. She noted that understanding the difference between good and bad debt can make financial decisions far easier.

“There is a way you can borrow money that can be used to build wealth,” she said.

Good debt and bad debt, she explained, are distinguished by the value they add to your life, with good debt being money used to buy things that increase in value over time, and bad debt being money borrowed to buy things that depreciate in value over time.

Examples of good debt included:

• A mortgage that fits your budget, with emphasis on ‘fits your budget’.

• Education that offers a credible return, and

• A business or equipment purchase that clearly improves income after proper analysis.

Given the current context, she noted that for families recovering from Hurricane Melissa, borrowing to repair or secure shelter would also be considered good debt. She also shared a viewpoint she acknowledged may be controversial: In areas where public transportation is unreliable, taking a car loan may qualify as good debt if it allows someone to get to work reliably and increase productivity. Similarly, replacing an unreliable vehicle that costs more to fix than to use can fall into that category. Bad debt, on the other hand, includes high-interest loans and borrowing to purchase items that lose value quickly, decisions that drain finances rather than build them. She explained that with a 67 per cent credit card interest rate, not paying the full balance each month has serious consequences.

“If you are just paying the minimum, it means that for every dollar that you are paying, only 33 cents is going towards paying what you actually owe on the card; the 67 cents that’s left over is going to the bank as interest. This is why a credit card is a very vicious tool if not used wisely,” she warned.

Because of the high interest rates on credit cards, Tilbanie warned that using them to buy depreciating items without the ability to pay the balance in full each month is a clear example of bad debt. She added that taking on loans to keep up appearances, such as upgrading a car that has nothing wrong with it, also falls into this category. Another red flag, she said, is borrowing without an exit plan or without understanding the interest rate and the monthly repayment terms. Recognising when good debt is necessary is only the first step. She further shared that the process must also include analysing the situation carefully. Her strategy involves a series of simple questions that she uses as a foundation with clients and a test to apply whenever someone is unsure whether to borrow, use a credit card or wait. The questions include: Does this loan really serve a purpose?

“I’m taking the loan to ‘blank’ because it allows me to ‘blank’,” she prompted. “If you cannot finish that sentence without feeling queasy, it’s a red flag.”

The second question is: “After taking this loan, can I afford the monthly payment and still have money left over?” Tilbanie advises clients to create a mock budget with the loan payment added in. If making the payment forces someone to cut into necessities or stops them from giving, she said it is a sign to go back to the drawing board.

“We want to be able to borrow money and have peace,” she added.

The third question is: “Do I fully understand the terms and conditions?” This includes knowing the interest rate, whether it is fixed or variable, the fees and penalties, and whether there are balloon payments. She noted that if anything feels vague, rushed or confusing, that too is a red flag. The fourth question is: “Will I still have a small emergency saving after this decision?” And the final question is: “Do I have a clear way out before I get in?” Tilbanie stressed the importance of having a realistic plan to pay off the loan.

“You need to have a clear way out before getting in,” she said firmly.

Tilbanie breaks down the steps to staying bad debt-free.