Sure way of getting into debt and how to avoid it (Part 1)
Getting into debt is very easy these days. In fact, it can feel like you are having a fun when you are getting into debt. You would have already been in debt before you realize what you are doing. The challenge is, it may not be as easy getting out of debt the same way you can easily accumulate debts. Therefore, instead of getting into debt which will later become a burden to you, I think it is better to avoid it if possible.
So, how does one gets into debt? It is a simple thing that people do without putting much consideration into it. Any time you spend beyond what you have, you go into debt. There is a saying that you can’t give what you don’t have. On the other hand, you can only give what you have. This is true to some extent. With debt, you can actually give what you don’t have. But anytime you are giving what you don’t have, you are indirectly going into debt. Until you see things this way, debt may be inevitable. The reason for going into debt is another topic for another date.
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How can one spend what he doesn’t have? Principally, you can spend beyond what you have in two ways.
Borrowing: You can borrow to spend. If you don’t have money, there are financial institutions around to borrow you money provided you meet their requirements. When you borrow, it becomes an obligation for you to pay back the money based on the agreed terms and conditions. The money you borrow usually comes at costs. The financial institution will charge you interest on the loan. The rate of interest may be influenced by many factors such as the prevailing interest rate, your credit score, the amount involved and the duration of the loan. So, when you borrow money, you will not only pay back the principal amount; you will still need to pay the interest on the loan. If you want to lower or eliminate the interest you will need to pay on the loan, you may consider borrowing from friends and relations. But if this is not managed properly, borrowing from relatives can strain the relationship.
Another way of borrowing which is fast becoming a norm is by using credit card. The use of credit card has made getting into debt very easy. With your credit card, you can spend money you don’t have as long as you keep within your limit. But you should understand that any time you use a credit card to make payment, you are actually borrowing from the credit card provider.
Buying on credit: With the use of credit card, you are buying as if you are paying cash immediately. However, that does not mean you are not owing. The party you are owing is just what makes it different from buying on credit. Instead of owing the party that sells thing to you, you are owing your credit card provider. But when you buy on credit, you are not paying immediately. That means you need to pay the seller for the item later.
Whether you borrow or buy on credit, you are simply going into debt. How long you will be in debt depends on how quickly you are able to pay off the entire debt. Please, you should also note that when you spend against an anticipated income, you are also getting into debt. For example, if you are expecting $1,000 at the end of the week and you buy an item of $200 against that anticipated income of $1,000 on Monday, you are getting into debt. Until you receive the $1,000 and pay off the $200, the debt will remain. The danger of spending against anticipated income is that, the money may not come when you expect. Before you know what is happening, the debt will begin to accumulate. This becomes worse if you borrowed the loan at a very high interest. Example of such loan with very high interest rates is payday loan.
Read Also: How I Paid My Student Loan Debts of $35,125 in 2 Years
In conclusion, if you want to avoid getting into debt, don’t spend the money you don’t have per time. Watch out for more tips on how you can avoid getting into debt. The tips can be very simple but they are very effective.