With the way things are going at present, debt problems are becoming more and more of a common denominator for consumers. So much so that carrying debt has become the norm. Those that seems to enjoy the luxury of not having any debt payments are a dying breed. As such, most consumers have resigned to the fact that debt payment will be a part of life.
In the bigger scheme of things, debt payment is not all that bad. Done right, it can help you reach your long term goals. Debt can, believe it or not, even increase your net worth. With this in mind, the question now is when does debt start to become a financial burden? It if is able to help consumers out in realizing their dreams, why do debt problems abound?
There is no question that debt can ruin your life but it can also help you with your finances. These extremes further underscore the need to understand debt better. Likened to a double-edged sword – debt can be a great friend or a deadly ally. You need to know how to use debt to be able to take advantage of the benefits and not fall into in a spiraling trap.
The ability to manage and understand how debt starts to become a financial problem is more important now as debt levels quite high. Valuepenguin.com shares that average credit card debt for households stands at about $5,700. If left unmanaged, this amount can quickly balloon in a few months, wreck your credit score, as well as increase your stress level. Here are a few things you need to consider to understand how debt problems can start to manifest in your finances.
Absence of a household budget
Truth be told, the lack of a household budget seems like you are really asking for problems to start. Regardless how much you read up on and take a look at household budget tips, execution is still critical. You need to accept that having a budget should be a critical part of financial management. This is something used not only by households but even businesses as well.
Having a budget at home allows you to view your finances quickly. It can also give you the chance to make informed financial decisions. This is because it lists down your income and expenses in relation to your goals. This gives you the chance to make changes, add or take out items to help you get to your goals faster.
Not making payments
This should be a given but unfortunately, there are still a lot of consumers who are not making their payments. Just like how CNBC.com shared that there are over 3,000 student loan borrowers defaulting on their payments every single day. Of course, there are a lot of factors that surround this but at the end of the day, payments are not being made.
This does not only happen with student loans. Consumers also fail to make payments on their mortgage loan, credit card debt, car loans, and even personal loans. This is the turning point where debt problems start. From being an enabler to being a prohibitive item in your budget. It is important to understand that as soon as you forego debt payment, financial problems will start to crop up.
Sending late payments can trigger debt problems
You might believe that sending in a late payment is better than not sending anything at all. Though it has some merits, it still affects your credit score. It is true that it is better to send a payment late than never paying at all. However, it is still advisable that you make payment on time all the time. This is to help you protect and improve your credit score.
If you already know that you will have to send payments later than the due date, it might be a good idea to let your lender know. You can ask them how long your grace period is and if it is possible not to mark your payment as late. This is a courtesy they might be able to extend to you provided you have always been on time in the past.
Dealing with a lot of payments
It is not surprising to end up with a lot of debt payments in your household budget. Debt problems would start to manifest once you are unable to manage and juggle all these payments. You could then start to miss obligations because you overlooked the due date. It is also possible to confuse one amount with the other. This can essentially overpay one account and underpay the other.
In these cases, you can consider taking out a debt consolidation loan to help you manage your payments. It can help you in streamlining your payment details. This gives you the chance to worry about fewer details such as dues date, payment amount and even interest rates. It can even lower down your monthly payment as you stretch your timeframe longer.
Letting other people ride on your score
If made it a conscious effort to take care of your finances, there is a good chance that you enjoy a good credit score. This allows you to receive low-interest rates on some loans and even pre-approval on some of them. However, this can make family and friends ask that you cosign a loan with them so they get to enjoy the same privileges.
You need to be very careful when asked to cosign a loan for a number of reasons. For one, LendEDU.com explains that about 38.5% of parents who co-signed a student loan for their children are now worried. This is because their kids are missing payments and adversely affecting their score. The same thing can happen when you let other people ride on your score. It might be a lot better to just lend them an amount that you can manage not being repaid on. It saves the relationship, protects your score, and allows you to avoid financial problems.
Letting your emotions get the better of you
There will be times when your emotions will be so high due to various circumstance. You can be so happy due to a promotion and salary increase in the office. Sorrow and despair can also come due to failed relationships and misunderstandings with people close to you. Grief could also be one of these emotions especially when you lose a loved one.
In all these, you need to make sure that you try and avoid making hasty money decisions when you are at the height of your emotions. You might make promises you can’t keep or undo years of saving up with one ill-advised move. Wait for your emotions to settle down before making financial decisions. This is to help you keep away from potential financial problems.
Not having long term goals
If you do not know where you want to go, chances are you will get lost along the way. The same idea can be used when it comes to your finances. It is ideal to pin down your long-term goals in order for you to anchor your present actions. If you do not have targets for the future, you will not have any reason to fix your finances in the first place.
Debt problems abound when you start to lose sight of why you have debts in the first place. You need to keep in mind that you are using debt to reach your dreams. Do not let it use you and keep you in the red all your life.