Sometimes it takes more than common sense to avoid debt. If you do not have a budget, then make one, because without a budget you will never gain control of your debt, unless you just happen to win the lottery. Now, debt can be broken down into two very different segments. There are people who are in debt by choice, and people who are in debt due to lack of funds, such as someone whose salary is barely acceptable to make it through the high cost of living.
“Debt by choice” does not literally mean someone ran up credit cards or other lines of credit to put themselves into debt. Debt by choice refers to those whose salaries are more than enough to pay for their living expenses and family, but got lost with a budget somewhere along the financial path in life. These people had disposable income that was not saved or invested properly.
“Debt due to lack of funds” involves people who make just enough to survive and obtain debt when buying a car to make it to work or who live on credit cards just to pay the bills. Many times these families are in massive debt due to medical bills or previously lost a well-paying job in the meager economy we see today.
No form of debt is good. Banks may convince you that getting into debt, and then making timely payments is a smart choice as it raises your credit score. The problem with this common misconception and outright lie from the bank is that the overall cost on interest usually outweighs a smarter option such as saving money and making investments.
In the eyes of the bank, buying that $50,000 boat and making steady payments will raise your credit score, so you can obtain more credit with them, and get into more debt. When you want to buy that new car, even though you bought a new one last year, you are giving into the bank lie. The bank now has more interest to “tax” you with.
The bank loves for its customers to be in debt as interest rates are “debt tax” by the banks. The rates are at a point that would be considered usery in the past. The bank never wants to disclose the fact that they will raise their “taxes/interest rates” at some point in time due to the bank’s own economic problems with regard to the economy. Like oil companies, the bank always has a “legitimate” reason for higher prices.
You should obviously try to avoid debt completely. The only acceptable debt is in the purchase of a home, as a home is an investment made with debt, as opposed to that boat or fancy car, which is a luxury and will decline in value unlike a home.
The most common sense way of avoiding debt is to never put yourself in more debt than you can pay off completely in the pay period to avoid interest. Your credit score will rise if you make your payment each month back to zero. You do not need debt to get a good credit score. That is a myth.
Credit scores are ridiculous measurements of one’s financial capabilities as it never takes into account the ills of life such as unexpected medical bills, home repairs, or expensive car repairs, but merely pops out a number that says “You paid x-amount on x-date.” People who make a good salary and can make their monthly payments, but continue to rise in debt are those who are in “debt by choice,” losing sight of a realistic budget along the way of obtaining more credit for things that cost more than their actual amount of disposable income.
When it comes to debt from lack of funds, there is a bigger problem. The problem is the job, or lack of job is unable to meet the day-to-day cost of living. Factors such as lack of education, medical problems, or having extra dependents such as an elderly parent can cause a budget crisis for these people. It could be said that many people fit in both the debt categories. Those who fall into this category often get payday and title loans often just to pay the rent and feed the family.
Debt can be avoided by those who lack funds if they are smart with their money and can find smart and free debt help solutions. If you fall into this category, then think of $20 a month that you don’t need. Perhaps you spend $30 a month buying a simple soda at the store every day rather than drinking a ten cent bottle of water from grocery shopping. If you take that $30 and put it into a savings account each month, then you will have saved $360 a year. That seems negligible until you also realize you can save another $100 a month on groceries clipping coupons for an hour or two. You have now saved $1,560 for the year. Even those who make a meager living can find ways to save money. That $1500 can currently buy you an ounce of gold, which is a spectacular investment.
Another helpful tip if you are in the group who lacks funds is to consider swallowing your pride and applying for government assistance or finding a charity that may pay part of your rent each month in good faith. There are times when everyone needs extra help, and you should not be ashamed to seek financial assistance from the government, charities, or wealthier family members if you truly need help. Perhaps you can find some vocational classes and even land a better job. The possibilities are endless if you are determined to make life better for yourself.
Avoiding debt is an issue for anyone that is not rich. Whether you are a family that makes a respectable amount of money, or you are a single man who gets by on minimum wage by renting a room from someone, debt rears its nasty face at times, if not much of the time. Following some of the common sense tips from this article are sure to help you in your journey toward financial freedom. Financial security is one aspect of life that everyone seeks, and if you play it smart, you can and will become financially secure.