How To Avoid The Debt Trap
Debt elimination should be the number one priority for anyone holding debt.
Being in debt feels terrible. It not only keeps you from attaining your financial goals, but can also be a source of stress. When you eliminate debt, you eliminate one of those monthly bills thus having more money flowing into your life and staying there.
A lot of people struggle with getting out of debt because they are unsure of where to start. Many questions linger. Which debt should I pay off first? How long will it take to get rid of the debt? What should I give up? Should I consolidate my debt? How can I stay off debt for good?
In dealing with a debt situation, it is helpful to begin with some self-reflection. Ask yourself, ‘How did I get into the debt position?’ To get out and stay out of debt calls for change of habits or circumstances that led you to debt. Take some time out to think about this and write down three to five factors that might have led you to debt.
Below are common reasons why people get into debt:
- Poor money management
- Loss of employment
- Medical expenses
- Not allowing for ‘fun’ within budget
- Keeping up with the Joneses
- High interest charges
As already seen, people often end up in debt due to overindulging and over borrowing but this is not always the case. Sometimes, arising of debt may not be your fault. Reflecting on the reasons that got you into debt should not lead you to self-pity or to making you feel bad about being in debt. The goal is to realize what led you to debt so that you can take corrective actions.
Once you are clear on what contributed to your debt accumulation (the tough part), ask yourself what you could do differently to avoid debt in future. If your spending habits are ruining your financial future, change them. In a lot of instances, spending money results in a feel good effect hence coming to terms with bad spending habits is tough. If your spending habits are ruining your financial future, you must get rid of them and bring your spending into control. The following tips should be helpful:
- Pay with cash whenever possible.
- Stay within your spending limits.
- Avoid impulse purchases.
- Avoid ‘buy now pay later’, ‘interest free financing’ and similar offers that merely postpone debt.
- Compare prices before making major purchases.
- Carry with you only the cash you can afford to spend while shopping.
- Avoid borrowing to finance purchases, especially the ‘wants’.
- If you cannot avoid borrowing, use the lender that offers the lowest interest rate.
- Avoid bank overdraft charges by keeping close tabs on bank balances.
- Keep a record of all credit card purchases and always pay more than the minimum payment on credit card bills if possible.
It really isn’t that hard to stay out of debt (or bad habit) once you discipline yourself to do what is needed. If you think about it, you already exercise discipline in many areas of your life. Know that the same power that gives you discipline in other areas can help you in managing your debts. For example, you have to work to generate some income. Failure to this may result to negative consequences (no rent, food, school fees, etc.). The problem with incurring debt is that the consequence is not immediate – it takes several days or weeks before a payment is required. It takes some level of discipline.
Know when to seek help. Repaying debt can be a difficult and draining task for some borrowers. Seek help before you hit rock bottom.
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