Financial management is a challenging task but there are times when this is complicated further by debt traps you are currently in. One thing that can make matters worse is the fact that you might be in denial with this situation. It could be because you genuinely do not have an idea about it or you are simply ashamed to admit it.
The problem with this is that the longer you are in this type of financial situation, the more damaging it is for your finances. Take a credit card debt for example and when you start to ignore the payment you need to make. If you choose to throw away the credit card statements as soon as you receive them, the payments do not go away with the statement. In fact, it just gets bigger every month.
This is one of the debt traps you could be in because the longer you ignore the problem, the deeper the hole you are creating. You might suddenly start to receive collection calls from different companies simply because your lender has sold your account already for the inability to collect. You then have to deal with a new set of collections that is more demanding than the previous one.
What you need to understand when it comes to payment problems such as these is that you can either avoid it or get out of it. You might feel that there is no way out and you begin to resign to the fact that this is your new reality. CNBC shares that excluding mortgage loans, Americans owe about $38,000 in personal debt. This should not be the case and there is a way out if you are willing to work on it. If you are, read on and find out some of the things you can do to climb out of your current financial problem.
Figure out just how deep your problem is
The first thing you need to do when faced with debt traps is to determine how big the problem is. It is good that you acknowledge that there is a problem but you need to really sit down and analyze it. The first place you can look into is your debt obligations because this is usually where the problem starts from.
It would be a good idea to list down all your debt payments to have a clear picture of the situation. This needs to be a comprehensive list complete with not only the amount you pay but its breakdown as well. The principal amount, the interest, as well as fees and other penalties you are paying for each of them every month.
With t his list in mind, it is a good idea to benchmark them with your budget especially your income. This will help you assess how much you have left every month to pay for these debt obligations on top of your recurring expenses. There are times when the problem starts because you simply do not have enough in your budget to pay for every single debt item.
Identify the main cause of your debt problems
Debt traps can make you think there is no way out and that you will be in that state for the rest of your life. However, this should not be the case but you need to put a lot of work into it to get out. Now that you have identified the amount, you need to dig a little deeper and understand how you got to that situation.
If you are in a financial trap because you have huge credit card payments, you need to ask yourself why you racked up all those charges. Are they from online purchases you make whenever you feel down and out? It is also possible that you re easily swayed by online and in-store promotions that you give in and buy items even if you do not need them.
There is always an underlying reason why you are in debt and once you identify that, you can begin to work on the root cause and not just the symptoms of the problem. This will help you address the situation better and help you get out of your financial trap a lot faster.
Create a habit to steer clear of these debt traps in the future
One of the most effective solutions to your problem is creating a habit to help you battle and prevent the same thing from happening again. Once you begin to explore this, make sure that you focus on small and doable steps in the beginning. You might think that incorporating big changes in an instant will yield bigger results. The truth is that it could but the problem is sustainability and habit building.
It can be as simple as unsubscribing from the mailing list of your favorite online store. This way, you are not easily tempted to open the link, see the deals and promos, and start buying things you do not need. You can also start putting aside a small amount every day to help you save for that item you want to buy. By doing this, you train yourself to save money before buying what you want.
The important aspect of habit-building is consistency in the action. You need to make a conscious effort to repeat the process over and over again until it becomes second nature for you. This way, you are able to integrate the habit in your daily money management as time goes by. Sooner or later, you will see the improvements it brings your finances.
What can happen if these debt traps persist?
You might choose to still look the other way when it comes to your financial problems. If this is the case, here are some of the possible scenarios you could face in the very near future.
You go down a debt spiral
If you get into a debt spiral, this is a downward direction where your debt problems accumulate over time. Much like the credit card debt mentioned earlier where if you choose to ignore it, the amount you need to pay gets bigger every cut-off. This is due to the interest, fees, and other penalties that your lender will add to your account. This amount only becomes bigger the longer you ignore the problem.
This can apply to other debt obligations you might have whether it be for your student loans or even payday loans. This is much more complicated when you start to talk about secured loans because then, your lender will have the option of exercising their lien over your asset. They can take away your car or even your house for non-payment.
Your goals keep moving further away
When you choose to ignore debt traps in your finances, it can push your goals in life further away from you. Retirement might start to look like an impossible goal or that downpayment on the house seems out of reach. Even as Gallup shares the average retirement age is 66 years old. Even paying down a small debt amount is beginning to be a challenging ordeal. These things can happen when you choose to ignore your debt payments.
Debt traps can drive your finances to the ground but there is a way to start getting out of that situation if you choose to. Many times people feel that they will just keep on doing what they are doing hoping the problem will go away. However, unless you decide to do something about it, the exact opposite will happen where the situation will worsen over time.