Debt and Your Business
 Recently news of Italy’s debt cost hitting a record high of 7% sent shivers through the spines of economists the world over. The high debt cost means that Italy has to spend a total of 7% of its GDP just to keep up with the interest payments on its debt. With budgets already stretched tightly over healthcare, education and other necessities, 7% of Italy’s GDP on interest repayments is near impossible. Logic would dictate that at some point strict austerity measures would have been imposed to prevent the debt worsening, but economies are rarely as simple as logical thinkers would like.
The unfortunate and inconvenient truth is that debt is sometimes a necessary evil, as it helps countries to expand and is a short-term solution to economic problems. But when expansion doesn’t go quite as planned, the country is left with a debt that it can’t repay and the debt becomes a long-term economic problem. Poor governance and even poorer fiscal planning eventually proves ruinous, as demonstrated all too well by Italy’s current situation.
Small businesses and individuals often fail to impose the financial restrictions needed to avoid a debt crisis. They invest loans unwisely and repeatedly take out loans to solve growing debt problems. They fail to properly account for the spend of the loan and often end up failing to reinvest properly into the business.
Taking out a loan to solve a growing debt crisis is never a good idea, as all it does is compound the problem and increase interest. Self-imposed restrictions are the best alternative, as they allow you to get control of your mounting debt without getting into further debt.
Controlling debt is a challenge in itself, but it is not impossible. The alternative is the equivalent of financial hell: never-ending debt, which compounds itself and causes severe depression.
Discretion in taking out a loan is vital when it comes to controlling debt. Many take out a loan because they can, not because it is, in fact, necessary or beneficial. People often find a lot of reasons to convince themselves that the loan is necessary or beneficial, but the truth is that a loan is taken out because it is seen as the easy – or only - solution to a problem.
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