People often think that they take informed financial decisions until they fall into the debt trap. Consumerism has definitely played an important role in driving people into the debt that they cannot pay. But, that is only a part of the whole story.
More and more people are now falling into debt and frequently seeking the help of professionals for their debt management requirements. This is a highly effective strategy to deal with debt problem. It can help you take control of your finances and eventually get rid of the debt. But the lesson one needs to learn is to avoid falling for the debt traps in the first place.
So, how does that happen?
The huge debt that you accumulate is a result of faulty financial decisions in the initials stages. What you think of as a smart move is nothing but an illusion. Companies, brands, and even your peers are responsible for making you spend money on this that you don’t immediately need. But no one is as responsible as you are for your own financial decisions.
It is so easy to fall for the numerous, and sometimes unavoidable ads that make their way to you. They are supposed to work that way. With the social media becoming an integral part of your daily life, it is hard to ignore what the latest offers are and what other people are buying.
How Does the Debt Process Start?
If you fall into a debt it’s not your fault, at least not at the initial stage. The advertising, marketing, and sales strategies are solely directed towards you, to convince you to spend more money. No matter how smart you think you are, their strategies sometimes work through even the thickest of the skin.
One simple way to define the debt trap is how the huge cost is broken into smaller and more affordable pieces making you think you can actually afford it. From the salesman to the online stores, they will help you will find a way to pay the huge amount in smaller installments. No, you don’t have to pay $30,000 for your dream car at once. You can pay $350 per month over a period of time. This sounds so affordable, doesn’t it? This is where the falling into the debt process starts.
All the seller has to do is tweak the situation and make it less scary than what it was moments ago. Now that you know you can buy your car at an affordable rate, you breathe in relief and are ecstatic. It’s called removing those damaging elements that your brain perceive as dangerous and let it believe it otherwise.
Playing the Blame Game
You may put your brain at ease with a little trick. But it comes back to bite you later. All those doubts that you had earlier come back. You thought you could afford the small installment, but now you cannot. Once you have the thing that you desire the idea of keep on paying for it for months and even for a year is a burden. Slowly the cost seems unbearable and your brain stars thinking of all those doubts and starts nagging you. The fact is you couldn’t afford the bigger prize then and you cannot afford smaller price now.
The ultimate question is: did you really need that car in the first place? What drove you to take that decision? The answer is simple: comparing your situation with others. When others can drive a new car and live happily then why can’t you? This is one of the common dilemmas that people face in their lives, comparing with others. Your wants become your needs in no time and you fail miserably in the end.
The debt doesn’t just happen because of the car alone. After you get what you want, you start looking for other things to gratify your needs and sense of accomplishments. And, the process goes on.
What you Need to Do?
When you are unable to handle the situation effectively you ultimately turn to the debt management experts. One of the key elements in the management of the debt is staying clear on the “wants” and “needs”. The experts will advise you to recognize your immediate needs and wants so that you can make a sound decision. While your present debt needs to be paid anyhow, you will have to keep this in mind for the future.
Debt management will require you to take control of your finances and trade carefully. This you should have done in the initial stage. The debt trap has led many people to fall into depression. People who have debt related problems often experience mental health problems in their life.
The simple solution the experts suggest is to listen to your mind when you are making decisions and be aware of all the consequences of buying things that you cannot afford with your present financial situation.
Five Easy Steps to Eliminate Debt
If you’re like many Americans, you’re probably having at least some financial trouble that’s being caused by debt. With the average American household holding are $7,149 in credit card debt alone according to statistics released by the Fed in July 2015, it’s not surprising that so many families are struggling under the burden of too much debt for a budget to handle.
This puts households at risk for weaker credit, less available cash flow, and possibly even bankruptcy. To avoid these situations, you need to eliminate debt and ensure it stays at a minimum to improve your financial stability as much as possible.
These five steps can help you get on the right financial path when it comes to debt:
- Maintain a credit card debt balance of no more than 10% of your monthly net (take-home) income. This amount almost always ensures that your total debt burden doesn’t exceed what you can afford at your income level. If your debt payments exceed 10% of your monthly income, you need to take aggressive action to implement a debt reduction strategy in your budget.
- Never be satisfied paying only the minimum amount due on your credit cards. The minimum payment schedule on your credit cards is designed to keep you in debt as long as possible to maximize the creditor’s profits through interest payments. To save money and eliminate your debts efficiently, you should be paying more than the minimum amounts required. This only applies to credit cards, which as revolving debts have a payment schedule that increases and decreases based on your current balance.
- Don’t waste extra money on your mortgage. Making small extra payments on your mortgage doesn’t really do anything to help you in the short-term. It’s true you reduce the debt faster, so you may finish paying off the loan in 29 years instead of 30 years. However, your mortgage has a fixed payment schedule, so paying extra money on your mortgage doesn’t reduce the amount you are expected to pay each month. As a result, you get a bigger benefit from paying off unsecured debts, such as your credit cards.
- A debt payment calculator is your best friend. Want to know how extra payments will affect how quickly you can eliminate a debt and how much interest you’ll pay over time? A debt calculator is your best friend, because it can tell you that and more. You can find out additional charges on the credit card will increase your balance, as well as compare how much of a difference APR makes in the amount of interest over time. Even better, you can find good debt calculators online for free, so it’s an easily accessible resource even if you are short on cash.
- Don’t be afraid to ask for advice. The financial world can be complex and confusing. If you need an alternative way to pay your debts off or need to look into options for debt relief, it can be hard to know which option is really the right choice for your finances. If you need help with debt, contact a nonprofit credit counseling agency to speak to a certified credit counselor about your situation. You can get free advice and have better peace of mind that you are making the right choice for your situation.
Using Credit Cards To Pay Off Debts
In the changing world of technology, many are moving from paper to paperless money. Credit cards are getting into use with the ease they come with. With the card, you don’t have to carry bulk of notes but you will just carry the card and clear the debts easily. Some people have more than one credit card although it is necessary if you are sure that you have enough income sources at your disposal. Not all people understand how to use the cards for effective payment of debts. There are simple tactics that you can use to clear off your debts with ease. New credit card users may have hard time trying to fix the problems if it is the first time to use the card.
To clear the debts effectively, you need first to stop any additions of debts on your credit card. Sometimes people think that it is easy to pay and they forget whether they will need to pay back the cash with some interest. However, you can visit shops offering free financing. Many stores online provide the plan whereby you will not have to pay off the debt in for instance 12 months. During this period, you may need to set very strict and automatic payments for the whole period. You can use your credit card and avoid paying interest. If you set up a suitable plan, it will be easy to clear the amount within the required time. The interest you will pay may be huge especially if you are purchasing a pricy product.
Pay Off Debts
Further, you have to see the most recent debts and start clearing from here. This means that you can take a suitable plan and arrange all the debts including the interest you are supposed to pay. Afterwards, you can plan depending on the amount you can afford in that month. This is simple as clearing of the pending amount will be quicker. Controlling the payments is possible using the credit cards and proper planning. You can work on the different calculations and consider making a very clear plan for your budgets hence getting paying off your debts easier. The pending balances will take you some time and it is good to consider taking heed of all the amounts you have spent. Consolidating the debts in one single payment plan is better. After getting the amount, you can commit to giving a certain amount towards paying off the debts.
With a suitable credit card, you can pay the minimum per month and avoid the hassle of clearing big debts when straining your financial life. Cards without a transfer fee will come in handy to help you deal with the problem. It is easier to handle debts through consolidation than when you are doing it normally. A consideration of the different statements can give you a simpler way to clear off your cash and make your financial life easier.
If you have more than one card, you will have to target the highest rated card and this is a simple way to clear your debts. Targeting the highest rate can help you to move faster in clearing your debts. It is very easy to clear off your debts with this plan. After you clear with one card, you can move on to the next card and have the best opportunity that can allow you to make a better financial life. After you budget all your things, it will be quicker to clear every issue when you start making payments, make sure that you are consistent until you clear every debt. It is easy to use the credit cards with a better control of your finances.
This article was produced by Andy Gorton who is the owner of the Bankruptcy Clinic