The worst way you can handle your money is to keep piling on debt to the extent where it becomes uncontrollable and paying it off becomes an impossible nightmare! It may take a long time to recover from such a death trap and it can even disrupt your basic livelihood. So always beware of this deadly death trap and learn about the ways in which you can avoid it for good!
COMMON DEBT CAUSES
Let's examine some of the primary reasons for debt. You may avoid debt and make wiser financial decisions as a result of this.
income decline or poor income
education expenses
unexpected emergency
extravagant way of life
Expired budget
Using credit cards as payment
Insufficient or no savings
committing future debt
HOW TO STAY OUT OF THE DEBT TRAP
In order to avoid debt trap, proper financial planning and management is necessary. Still due to unfortunate circumstances if you fall into it, here are six strategies to assist you get out of debt pitfalls:
Determine the problem.
Analyze your current scenario and pinpoint any potential problems due to which debt is accumulating. Next, make a strategy to deal with the issues that you can manage and start working towards sorting that. Your solution to your debt issues may lie in a thorough, painstaking examination of your existing circumstances.
Check your needs first.
After careful consideration:
Sort the costs you incur into necessary, semi-essential, and non-essential categories.
Organize these costs according to importance.
Change your behaviour or way of life to stop spending money on things that are not absolutely necessary.
Consider consolidating your debt.
You may take out a single loan to pay off all of your numerous loans thanks to debt consolidation. Once you have consolidated your debt, you just have to worry about making one loan payment every month rather than several loans with various interest rates and due dates.
Use your investments as leverage to pay off debt
You could be able to lower your debt commitments if you've invested in high return strategies like mutual funds, bank deposits, chit funds, or stocks. After paying off a sizable amount of debt, you may concentrate on reestablishing your financial security.
Stop accumulating additional debt.
By taking out more borrowings to pay off debt you already have, you put yourself under more financial pressure. So stay away from them entirely.
Create an emergency fund.
It's crucial to have a separate account specifically for handling monetary crises. An emergency fund should ideally contain three to six months' worth of living costs. This money enables you to go through difficult times without needing a loan.
Final words
You can build financial freedom by a proper management and avoid the debt trap. In order to protect yourself from excessive interest rates and debt traps, pay back loans and credit cards promptly if you use them to make purchases or achieve urgent financial goals.
Moreover, it is crucial to understand the difference between good debt and bad debt. You could choose to divide your loans into two categories—revenue-generating and non-revenue-generating—to better comprehend this. You can continue to make money long after you take on debt to buy an asset. It's referred to as "good debt." A bad debt, on the other hand, is a loan taken out against an asset that doesn't bring in any money. So create a good strategy and stay out of debt!