Do you know how to handle debt?
There isn’t a person alive who isn’t in some way concerned about their finances. Unless you’re incredibly lucky, your financial situation is always going to present certain limitations on your life and the way in which you can live it. You may not be able to spend as much money as you would like on luxuries or perhaps you simply aren’t in a position to save money. Of course, for some, it’s much more serious than that. Some people are in a position where their financial situation means that they’re constantly in danger of not being able to afford their energy bills, food, or even to live in their homes. These kinds of issues are incredibly serious, and many people don’t how to help themselves avoid them.
However, there are some things that people can do to avoid this, potentially catastrophic situation. Unfortunately, since you can almost never get something for nothing, many people find that the solutions to their finances problems often involve debt. Whether it’s a loan from the bank, remortgaging, short-term cash loans, or credit cards, many of the ways in which people are able to pay off any large financial obligations can land them in pretty significant amounts of debt.
Of course, debt isn’t always bad. In fact, it can be pretty positive at times. After all, many people find that a small monthly payment is far more manageable that a single large payment. Not only that but paying off your debts can even help improve your credit rating. Of course, that doesn’t mean that debt is always good. In fact, too much debt can leave many people financially crippled and completely unable to pull themselves out of it. To help make sure that doesn’t happen to you, here are some ways that you can manage borrowed money and hopefully avoid falling into a bottomless pit on every increasing debt.
Only borrow what you can afford to pay back
This might sound a little odd to some people. After all, why would you need to borrow money if you could already afford it? But this isn’t really how debt works. After all, most of the time people end up borrowing money not because they can’t afford something overall, but because they can’t afford it at that particular moment in time. This is why payday loans exist. They are designed to tide you over for a week or two until you get paid and can then pay off what you owe. Or, at least that’s how it should be in theory. Far too many people end up miscalculating how much they can actually afford to borrow instead of thinking carefully about what their monthly income can stretch to. This leads to them being unable to pay off their debts and slowly building up more and more interest over time, not only costing themselves money but also destroying their credit score in the process. Think carefully about how much you’re borrowing, how long you’ll be paying it back for, and how much the payments are. Then, balance that against your monthly income and how much you can afford to remove from that amount. Only then can you truly figure out how much to borrow.
Never buy luxuries on borrowed money
One of the biggest issues that are facing modern households is that much of their household debt has been accrued through the purchase of luxury and non-essential items. This is part of the reason that so many people were left financially crippled following the financial disaster of 2008. There are plenty of experts who fear that the amount of spending on credit that people are doing in recent years is leading them down the same path. One of the most dangerous things that you can do is to think of credit cards or loans as free money to use on luxuries. Not only is this incredibly short sighted but it also causes you to massively overestimate what you can afford. It’s all fun and games until the end of the month when a huge credit card bill appears on your doorstep, and you’re in no position to actually pay it back.
Keep a clear budget
If you want to be able to pay off your debts, then you simply can’t afford to be in a position where you’re not keeping close track of your money. Far too many people seem to think that their money will handle itself and that they don’t need to track it carefully. Having a budget is one of the most important things that anyone can do on a financial level, but for those in debt, it’s even more important. You need to be able to look carefully at whether or not you’re in a position to pay certain things off or not. It will help you know whether you can borrow money and how much, not only that but you’ll be able to more closely manage your spending so that you’re not spending money that you need in order to pay back debts on something frivolous. Your budget should be as detailed as possible. Any regular payment, no matter how small, should be included so that you can keep the clearest possible track of where your money’s going and when.
Only borrow from trusted sources
It’s a sad fact of life that there are plenty of people out there who are more than willing to take advantage of desperate, frightened, and vulnerable people in order to make money. Because of that, you should exercise as much caution as possible when you’re trying to find somewhere to borrow money from. This is especially important in the internet age where it is far easier than ever for criminals with ulterior motives to manipulate and trick unsuspecting people into getting into bad debt. Make sure that you do as much research as possible on any organization that is lending money. If you can’t find multiple sources of verification that they’re legitimate, steer clear. Stick to things like banks and other established organizations. Sure, there are risks when it comes to borrowing from banks too, but they are certainly far less significant than borrowing from random companies. Remember: if someone is offering you a deal and it seems too good to be true, it probably is.
Never cover the debt with more debt!
One of the most tempting things that a lot of people do is to panic and use more borrowing to cover the payments of existing debts. While this might seem like a good idea in the moment, it’s the worst thing that you can do. All you’re doing there is digging yourself further and further into a hole where there is nothing but more and more debt. As hard as it might seem, you’ll be better off with things like saving bit by bit or working extra hours for a little more spare cash. Adding more debt onto what you already have is going to make life much, much harder. Of course, this is not the same as consolidating your debts. There are plenty of situations where you’ll be able to combine your various debts into a single monthly payment. Not only does this make a huge amount difference to your mindset, since you no longer feel like you’re drowning in debt, but you may also be able to reduce your monthly payments overall. You may end up paying your debts for slightly longer, but for those who are worried that they wouldn’t be able to make the payments at all, that’s a pretty fair trade.