Taking charge of your debts - understand the nuances first
Most people have been indebted to someone at some point in their lives. today it is primarily due to the rising cost of living and increased reliance on loans and credit. While borrowing, people fail to realize that a debt is an obligation that needs to be paid back however small the amount may be.
It is normal to be in debt as nobody is in control of all the money in this world. However rich one may be, the tendency to accumulate debt is very common now a days. You will be surprised to know that rich people have more debts than poor people because they have more needs. And they also manage to get more debts as they have enough collaterals and security to provide against the loan.
There is nothing to be ashamed of if you are in debt as long as you act in a responsible manner. Your intentions must be claer in paying back the debt as opposed to cheating on your creditors. As long as this is the case, you need not be worried about being in debt. Honor your commitment and so also your creditors. Arrange to pay back on time.
Debt has even plagued the most savvy financial planner. in fact they realize the benefits of debt and use it wisely. They use their financial knowledge and expertise and put it to good practice in real life. A good part oftheir analysis involves understanding the amount of debt and creating ways and means of paying it back without any negative repurcussions.
You must be able to compute your total borrowings else your debt management will go haywire. Knowing your indebtedness helps you arrange for the money to be paid back on time. People who don’t practice good debt management keep borrowing money without being able to monitor how much they already owe people or the financial institutions. this leads them to a debt trap where in they need to keep borrowing to settle their earlier debts. They end up paying huge interest in the process.
Proper debt management allows the person to know the moment he borrows money that he has to pay it back. he therefore also identifies a source to pay it back and only then agrees to borrow. In essence he knows how he can pay back the debt; if he doesn’t then he doesn’t borrow. It is as simple as that.
People without a steady source source of income should be the last ones to take the debt route. It could be disastrous in the long term. Debts pile up and in many cases these people do not know how to repay the same. Unemployed people, on the other hand, borrow for survival and fall into the same trap again. They need to figure a way to earn money while in the initial stages of borrowing. Very few have the opportunity though. This is one of the reasons more people get trapped into this vicious cycle of debt and further borrowing.
If you are in debt, ascertain the value of your inventory to pay off the debts. Include unpaid income in these calculations as you will need to encash every possible penny depending on the status of your debt. You need to be extra careful while borrowing from others in such situations. Use the thumb rule - do not borrow if you cannot identify the source to pay off that debt.
Many people get indebted because of loans with varying interest rates. This primarily happens ecause they were not cautious to check merket rates and so ended up paying exorbitant sums as interest, let alone the principal. This could have been avoided had they checked earlier. However, they can still think of refinance options.
Being in debt is a normal, but what is essential is to learn to manage your debt. As far as possible stay away from debt, but if you have to keep it under control.
One of the major factors why most Americans are indebted today is becaue they do not use their credit cards properly.
Credit cards: These are those plastic cards that can be used to pay for almost any purchase and that you can pay back a month later. It sounds like a bonus amount but is essentially a loan amount which you need to pay back. People find it easier to spend when using their cards because they only have to swipe it. What they miss out completely is the payment part that grills them at a later date. The consequences of these actions and non payment leads to penal actions and criminal proceedings against them.
Go ahead, borrow if you must but always be in control of your borrowings by monitoring them. Make sure you have an alternative source to pay off your loan amount. This will help you resolve your credit situation in many ways.
Article by Nakagava Ltd., creator of PiggyBob™, the first truly user friendly personal finance and appointment scheduling software. PiggyBob™ is an extremely convenient tool to help you keep track of your income and expenses, plus a very useful printable calendar to record all important events in your life.
