Being in serious debt is one of the most unpleasant experiences of life. While having a debt may sometimes be unavoidable, for example when buying a house, most of us do not have the privilege of paying all in one lump sum but have to secure a loan from the bank.
One small debt may not hurt us financially, but if we start to accumulate more and more, we will be swallowed up by them eventually. Below are a list of what to do to avoid being caught in a debt trap.
1. Take Debts Seriously
Do not throw your bills to the bin in frustration thinking it will go away naturally if you ignore them. Your creditors will never forget you because their job or they salary depends on collecting debts from you. They could resort to legal action to get their money back if you continue to ignore their notices.
2. Do Not Overspend
Do not live a $50,000 lifestyle on a $25,000 salary as your debts will keep mounting every year. Living within your means may not be glamorous but it is definitely a smart thing to do and to have a peace of mind.
Make sure you spend less than you earn and save the difference. This is a simple surefire way to avoid serious debts.
3. Close Your Door To Door to Door Salespeople
If you are one of those who are easily influenced by smooth talking sales people, do not open your doors to them. You may end up buying expensive items that you do not need and regret later.
4. Be Careful With Credit Cards
Credit cards is a tool that can be for us or against us.
When we buy something with a credit card, you will be billed at the end of the month and will be given another month to settle the total bill. We should settle all outstanding balance by the end of the next month without incurring interest charges. This way, you are like getting a two month interest free loan from a bank.
If we pay the minimum sum every month, we could end up paying much more than what the item originally cost because of the interest charges.
5. Delayed gratification
Do not buy on loan and pay later. It may be fun to obtain something we cannot afford now but we will end up paying more than what it originally cost because of interest charges. Instead practise delayed gratification by saving your money at the bank and earning interest at the same time till you can afford it. Do not think any attractive price offer is a once in a life time opportunity, there will always be a better one in the future unless our planet will be destroyed by an asteroid soon.
6. Fixed assets
Do not buy fixed assets like a house or a car yet if the monthly repayments are a burden to your finances. It is better to save while we rent or use public transport till your salary and savings are adequate enough to pay the monthly mortgage.
7. Acting as a guarantor
It is best not to be a guarantor to anyone because you are agreeing to settle the other party's debt if he defaults. His bank will hold you totally responsible for the debt like as if you were him. The impending outcome will not be pleasant especially if it is a big loan.
8. Do not gamble
Yes, it is possible to get that one lucky strike or a winning streak but it will always come to an end. You
may win some money in the short term but gamblers will always lose in the long run. Don't think for a second you can become rich or can make a living out of gambling. I have yet to see anyone making a comfortable living by being a full time gambler. It is the casino operators who become rich through making money from the majority of gamblers losing money to them.
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