Debt may seem scary, can risk your finances, set alarm bells ringing, but it is not that bad. Loan is a kind of financial assistance you take from a lender to tide over. You may need a mortgage to buy a house or you may be looking to get money for home refurbishment. Debt can help you finance your big expenses when you do not have enough savings. However, they are good as long as you are able to pay them off.
Paying back the loan timely is extremely challenging. It is so discouraging that it takes a toll on your mental health. More than 80% of borrowers fail to reimburse the debt on time, not because lenders charge high interest rates, but because people are short of cash. As a result, you take out short-term loans like no guarantor loans. Managing debt is complicated. It needs skills. You often get short on cash because of following mistakes.
Not creating a budget
A loan means additional expense. It does not only require you to pay the principle but also the interest. It puts strain on your pocket while your cash inflows have been the same. The first and foremost thing you should focus on is creating a budget. You cannot be reckless with your spending. Otherwise, the debt cycle will continue to build up. A budget will help you to know about your expenses and net income. You will have a clear idea of where your money is going. How you should cut down on your expenses to have more cash available.
Lending friends money you cannot afford
It is good if you help your friends when they need you, but at the same time you have to consider your pocket. Meeting regular expenses along with debt repayment can be challenging and stressful. If you have a tight budget, you cannot afford to lend money to your friends. You should find out other ways to help your friends instead.
Not saving money
You must have additional funds set aside in your savings account that you can dip into when you need. Having emergency funds can prevent you from taking out a loan for unexpected small expenses. Financial experts generally advise that you should save at least 10% of your monthly income. Most of the borrowers do not follow this rule consistently and dedicatedly and as a result fall short of cash.
Spending for unnecessary things
Every penny is crucial if you are trying to get rid of debt. Spend money judiciously and only on those things that are worth buying. Sometimes borrowers fall prey to temptations and stock up on things just to save a few pounds. In reality, they cost you more as you have blocked your money in those items that you do not need. If you had not wasted your money, you could use that to repay your debt. Whether you are using cash or credit card, buy things only when you need them. Don’t ignore to consider your affordability.
Not paying bills and instalments on time
It is crucial that you pay off your credit card bills, utility expenses and debt installments on time. If dues dates slip through the cracks, you will end up paying late payment fees and additional interest, which means additional burden on your budget. The best way to stay ahead of repayment dates is mark them on your calendar and set aside the money to pay them as soon as you get your monthly income. Try to settle all your dues in full. Even the minimum payment cannot help you escape late payment fees and interest penalty. Among all your expenses, give priority to your debt repayments.
Excessively relying on credit cards
You should use your credit card in case of financial emergencies only. Some borrowers use the credit card even if they do not feel like using it urgently. They use credit card to buy clothes, expensive cell phones, and other items that they cannot afford to buy. It is worthless using the card if you cannot afford to pay cash. Avoid using credit card unless you are not in a position to pay off the bill quickly. Credit card debt mounts up because you charge beyond your repayment capacity.
If you want to avoid falling into a debt web, follow aforementioned tips.