Primary Information About Debt

by : Jay Moncliff



People think that getting in and out of debt is pretty easy but it is not as easy as it seems. In the absence of careful planning debts can mount increasingly and turn into a very complex matter. People in general are not completely sure of how debts work and end up with a huge mountain of debts in front of them, ultimately filing for bankruptcy. The Consumer Debt Council has observed that 98% of all debt is avoidable. But this can be achieved only with a proper and meticulous plan.

Although it is primarily advised to stay away from debts, financial consultants segregate debts into two types: good debts and bad debts. A good debt is one you can reasonably afford to pay off and is within your budget limits. For example, loans taken for a house or vehicle may be necessary. However in such cases it is imperative to be realistic when choosing the kind of house or car. If the article you are purchasing on credit will depreciate in value as you pay the interest on it, it is a bad buy. This generally includes luxurious items, credit card debts, etc.

The problem begins when the bad debts go on accumulating. Thus you should try to get rid of them as soon as possible. Certain steps that will ensure you do this are:

Make a list of all your debts in the decreasing order of rate of interest. Start by paying off the ones higher on the list. Start reducing your expenses especially on not so essential items and increase the savings. Whenever you go shopping carry only the required amount of money. Leave your credit cards at home.

Also try ways to increase your income. Either by making sacrifices and working overtime or taking up a part time job. Try to ay more than the stipulated minimum monthly amount. This will help you to pay off the debt faster.

Another vital step is to carefully plan and prepare a budget. Enlist all your expenses, and sources of income. Plan in such a way that your income exceeds the expenses. The money saved can be used to eliminate the debts. However merely planning is not enough. The real test lies in exercising the right amount of self control and sticking to the budget.

After your debts have been paid, he money saved can be deposited in a bank. This will help you to build your finances and increase your standard of living. You should ensure that the bank pays you interest on your money rather than you paying the bank interest on the debts taken.