Dealing with debt is on the mind of anyone whose expenses are exceeding her income. Debts that become overwhelming or unmanageable can cause major disruption to a person's life and add to worries about family and future security. Debt management skills are necessary for peace of mind in a world where money is central to so many things.
Compulsive Spending
Out-of-control spending is a central factor in many people's debt problems. Whether that spending is on unavoidable things such as medical bills, mortgage payments or previous debts, or whether it is the result of compulsive shopping, the end result is the same: debts that begin to spiral out of control. Anyone who is experiencing compulsive or excessive spending on either necessities or indulgences needs to take steps, possibly with the help of a financial professional, to restructure his financial profile so that his spending falls within the limits of his income.
Interest
Interest is the aspect of debt that causes so much trouble for so many people. An interest-free debt will simply sit there and be owed until it is paid. An interest-bearing debt, on the other hand, will grow as it is neglected, particularly if the interest compounds on a yearly or even quarterly basis. Interest-bearing debts can range from mortgages with a reasonable interest rate of 4 or 5 percent all the way up to debilitating credit card debts that accumulate an annual interest of 18 percent or more.
Loss of Income
Unforeseen financial difficulties frequently cause or exacerbate problems with debt management. Even individuals who have their debts under control may suddenly find themselves in serious financial trouble if they unexpectedly lose their job or other source of income. Job loss is one reason having savings is critical to financial security. An accessible bank account with several thousand dollars in it can help to tide a family over during periods of unemployment. Emergency savings can pay rent or mortgage and buy food, as well as pay other debts to avoid going into arrears, a situation that could accumulate penalties and even more interest.
Lack of Information
In an information society, information is power. Knowing what your options are can help to keep you out of debt -- or at least help you to deal more effectively with it. Useful information can include a sound knowledge of your own financial situation and spending habits, an understanding of the size and character of your debts and the interest that you are paying on them and an awareness of your options in terms of bank loans, extensions of debt deadlines or, in extreme cases, declaration of bankruptcy.
0 comments:
Post a Comment