This article is targeting those who are already in debt and trying to climb out or those that are afraid they might fall into debt because of unexpected expenses. Debt is all around. But there’s hope; there are several methods of getting out of debt that will be discussed. Here is what you need to know.
What Is Debt?
Debt is the money owed on an unpaid loan or some other financial obligation. When you are in debt, you owe a certain amount of money to someone else. If you do not have any means of repaying them, your lender might have legal rights over assets that are of value to pay off the debt. Here are some examples of common types of debt:
Credit Card Debt
Credit card companies like VISA and Mastercard make incredible amounts of money off people who take out credit cards without thinking about the consequences. The average American household owes almost $15,000 in credit card debt alone. The reason interest rates on these credit cards are so high is that the credit card companies know that some people will go so far as to use a service called “balance transfer,” where they switch their balances from one card company to another in order to get a lower rate for a short period of time – often around six months – then afterward, they just stop paying off their debt. You need to know that credit card companies do not care if you are in financial trouble, they just want their money back so they can earn interest on it. Credit card companies have one of the highest profit margins of any business.
These are loans where creditors take assets like homes or possessions to repay what you owe them. Unsecured loans usually come in the form of individual-based lending; they are done by friends and family members who want to help out someone they know with a business venture (i.e., starting their own company), consolidating college debt, or taking care of home repairs that need immediate attention. These types of loans usually have no interest attached to them because no risk is taken for loaning these funds out. If you visit GoLoans, you’ll have access to valuable information on unsecured loans, like how these types of loans don’t require collateral because lenders check your financial ability to repay, including your debt-to-income ratio. Unsecured loans are typically used to pay off medical expenses and procedures, pay for a wedding, pay for a vacation, etc.
People do not think about the cost when it comes down to their education. Many students go into debt for hundreds of thousands of dollars to get a degree in a certain field because they think it will make them more money. In reality, college degrees are not as valuable as some people might lead you to believe. Most employers do not value college degrees as much as job experience that can show initiative and drive.
When it comes to being financially unstable, there are certain behaviours that may lead one down this path. Here is how to achieve financial stability.
Make A Budget
A budget is a list of your income and expenditures for a specific period of time. It’s easy to make a budget – all you have to do is take out a pen and paper, open up Excel or Google Sheets, or just use the Notes section on your phone. Make sure that every dollar you earn has a purpose. If there are certain luxuries that you can’t afford, don’t buy them. Cut back where you can cut back in order to save more money.
Note that a “budget” does not need to be an actual word document or spreadsheet with numbers filled in; it merely entails having all incomes and expenses recorded so you can keep track of everything from groceries purchased to utility bills to other monthly recurring payments (Netflix, Spotify, etc.).
Just as a budget is a list of your income and expenditures during a specific period of time, saving money entails having “set-aside” funds to either purchase items in the future or set aside for emergencies. Saving money can be done by taking 10%+ from every paycheck you earn and putting it into an account that is safe from being used – whether that’s into high-yield savings account or even just under your mattress. The reason why people shouldn’t spend their hard-earned money on superfluous luxuries is that they have no backup plan if something happens. Life happens, and if you’re not prepared for it financially, you’ll find yourself in debt with no way out. If you have a savings account, then your backup plan can be used to pay for unexpected expenses (i.e., car repairs, medical emergencies, etc.) that would otherwise leave you in dire straits if left unchecked.
Being financially stable takes self-discipline – it’s not easy at first to change the habits of a lifetime and rid yourself of certain vices, like eating out or purchasing expensive brands of clothes. But one has to look at the bigger picture: is an extra $10/day worth sacrificing your financial future? It might make sense only if you’re only making minimum wage at some retail store; but even then, your future should be more important than just enough money to pay off your monthly expenses. You should be saving up for the future, not spending on superfluous things that won’t help you prosper in your career or even within your lifetime.
Self-discipline is also important when it comes to paying off debt fast. If you have a credit card with a $2,500 balance and a minimum payment of $50/month, do not just let the interest rates pile up month after month because you think you’ll take care of it next year or whenever. Get rid of that card altogether and take out one – just one – credit card so that if an emergency pops up, you can use it as a backup plan without having to go into deep debt over something dumb like a broken phone screen.
The most important thing about achieving financial stability is to be smart. Money is not everything, but it helps if you can survive comfortably without having to worry too much about going into debt for bills or medical emergencies. If you want to be financially stable, start by saving money, making a budget, spending less than what you make, and always looking at the bigger picture when it comes to your finances.