Debt problems in today’s time can mean a lot of things. It can refer to getting behind on mortgage payments, coming up short on funds to cover the whole credit card bill for the month or even facing the probability that the car might be repossessed by the bank for non-payment on the loan. You might also find yourself avoiding some friends because you are unable to pay them back the money that you borrowed last month.
It is one thing to keep away from debt when you are debt free and it is another to know when you are already on the path to debt. Even before you dream of being debt free and staying that way, try to take an active approach and prevent bad debt altogether before it does a number on your financial life. Like the most common medical adage that you might have heard, “prevention is better than cure.”
But as with almost everything in life, preventing debt problems is easier said than done. In fact, Nerdwallet.com lists down the average debt of a household for the most common accounts. Mortgage would take the top spot at about $156,000 per household followed by student loans taken up in pursuit of higher education at around $32,000.
These are not small amounts of money that you can afford to overlook. Although these top two debt accounts can be argued to be classified as good debts, they are still debts that has to be repaid at the end of the day. You cannot argue that since they are good types of debt so you do not have to pay for them or at least get a payment extension. When the bills come, you have to pay up.
How do you know that you are headed into financial trouble
If everyone did not even bother to try and do something because it was difficult then there is big chance that all the great advancement in technology and even in the medical field would still be a pipe dream. The same goes for your finances, if people in the past did not even bother to persevere with their finances, we might not even believe that being debt free is possible.
Keeping track of your finances is hard just to be sure that you are not treading down the road down debt alley but there are signs you can pick up to know if you are in danger of getting into that situation. Here are a few things you might want to keep an eye out to help prevent financial problems.
- You do not have a household budget. If you are looking for signs, this is probably a big red neon sign that you might be heading down to trouble. Dealing with debt payments and managing your funds should be based on how you laid out your budget. The lack of it in your financial life can easily spell trouble in just a short period of time.
- You look at your money after the fact. When your idea of money management is to just look at how much is left at the end of the month or worse, how much you are in the red after meeting all your obligations then you have a problem. You are doing the whole budgeting thing upside down. It does not take magic to know how much you are left with at month end. You need to have a solid budget for your finances for that.
- You feel like retirement is not very important. When you have just started college, graduation can be the last thing you think about. The same goes with starting at work and preparing for retirement because they are almost at the opposite side of the spectrum of your professional career. But you might want to take note of the survey conducted by Gallup.com and it might change your mind. According to their survey, the average retirement age of consumers in the early 1990s was at 57 years old. At present, it is now at 62 years of age and there are a lot of factors that contributed to this increase in retirement age. But you might want to consider preparing for it early because you wouldn’t want to have to retire so late you never get the chance to enjoy it.
- You know that you can handle emergencies with your monthly pay. If you are confident that with what you are making every month you will be able to handle any and all sorts of financial emergencies that can come your way, then you need to do some research. If you do not have a fund set aside for emergencies, you are prone to financial disaster. Think of it as building a boat and taking out to the water but never learning how to swim, you might not need it but better to have it and not need it than need it and not have it.
- You charge payments on your card and carry over balances. Knowing when to use and when to put-off a purchase on your card is quite tricky but one thing is certain, if you cannot pay for it in full when the bill comes then don’t charge it. It might lead you to a ballooning interest payment for the next couple of months and you end up losing money in the process.
- You miss on your payment due dates. When you take out loans or even borrow money from your friend, you make a promise to pay them back at a certain date. This is the due date and some lenders even put in a grace period after the due date so you can meet your payment obligation. But if you start missing these due dates and find yourself sending late payments out then you are headed to a multitude of debt problems.
Tips to get back on track
Once you understand that you might be going down the path of financial problems, you can still make changes. The first step is knowing you have a problem and after that, here are some things you might want to consider.
- Start by putting together a budget. USNews.com suggests that the household budget to include mortgage and even the escrow payment for taxes and insurance should not exceed 30% of the total budget. This is a nice reminder to consumers but the more important thing is to put together a budget so you know how much you can allocate per cost item.
- Consolidate debt to manage payments. Apart from knowing that that there are different kinds of debt consolidation, you might want to consider the advantages and the benefits that it can bring to you and to your budget management. It can combine several debt payments into one single account giving you more time in managing other important things like career development and not debt problems.
- Charge only what you can pay in full. When you are using your card to pay for several purchases, you need to make sure that you can settle the full amount at the end of the month or when the bill comes. This can help you save interest payment and can even lower down your stress level when thinking about your debts.
- Strengthen your reserve funds. This refers to your emergency fund as well as your rainy day fund. The two are alike in function except they cater to different financial situation. The rainy day fund covers the smaller unexpected expenses while the emergency fund foots the ones for bigger problems like losing a job or even when you need medical care.
There are debt problems along the way but there are a lot of things you can do to address it. One of the best things you can do is to look out for signs that you are already headed down that direction and change your ways. If you do get in debt, you need to make sure that you put a system in place to get you out of it and be able to live a debt free life.