Are you swamped up in debt?
If you answered yes,
you are not alone! Kind of reassuring, or is it? Not at all! For those of
us who know what debt can do, it's never an easy thing to deal with.
Before I delve into the core issue of this article, let me begin by
explaining what debt is. A debt is what you owe another party who could
be a friend, family member, city council, state, company, bank,
institution, etc. You can get debt in form of money, assets, tuition,
loans, bank overdrafts, taxes, rent arrears, mortgage, etc. The list is
endless! In today's world, we can almost access whatever we want on
credit; a nice house, a cool ride, the latest smart phone, interior
furnishing, tuition, shopping,...You can go on and on! How we go about this "monster" called credit can determine whether we drown in debt or not!
Is debt a nuisance?
I
will answer this question with another of its kind. Why do we go into
debt? We go into debt just like governments and big corporations, to
access resources to enable us meet our obligations and build capacity.
This could be paying off rent or a mortgage and in other cases to build a
viable business. The reasons for going into debt are always good
intentioned in most cases but somewhere along the way we lose our
financial discipline and get entangled deep into debt! Otherwise, we
live with debt and "debt is our good friend"! Things you could work for a
lifetime are achievable through debt in the short run! Governments and
corporations borrow to build economies or massive investments. In the
same way our dreams of building successful companies, nice homes or
driving a dream car come to life because of debt well-managed. A friend
of mine once said, "the secret to success is debt" - a notion I thought
was ridiculous then, but not anymore. Debt is a necessary evil!
How do we get entangled into debt?
It's
very easy to unknowingly get entangled into debt if you do not exercise
caution. The temptations to get into debt are so many today. These
include among many; mortgages, phone plans, auto loans, health
insurance, overdraft and credit card debts. Let alone the providers of these services will virtually find you anywhere; at work, home or school to bring you up to speed on the latest attractive offers! You do not have to seek for "debt", it will find you! I remember a colleague at work who took a loan he was not ready to take just because a bank agent pitched him while at work. The loan turned out to be disaster for him! So it is important to remember credit is never your money until you have earned it!
Worth noting too, the
companies that offer credit services promise manageable and flexible
repayments yet claw on your monthly salary or revenues for a protracted period of time. Unless you
understand that living in debt is living a lifestyle you are yet to attain,
you might not know how to keep your debt to manageable levels. The
biggest victims are normally the employed. Citing meager salaries with a
pile of responsibilities, they resort to taking loans by way of bank
loans, credit cards loans, tuition loans, mortgages, etc to meet the
current demands. The size of the repayment installment is often very
flexible and manageable that we overlook other financial obligations
that we have while making decisions to get more debt. For instance, while still single, you might have obtained a 20 year mortgage loan and during
the course of servicing this loan, you get other short-term loans such
as auto loans, phone plans, credit card loans, etc. This might seem OK
and very manageable at that time, but when you get a family, the responsibilities
bulge up and squeeze out the little left after your debt obligations.
Survival becomes hard and stressful to the family because of not having
enough disposable income. Borrowing more(usually from friends,
relatives, etc) always seems the obvious interim solution, instead it shrinks
your income even further - burrowing deep into debt!
Categories of debt
There are two categories of debts; Priority debts and Non-priority debts. Priority debts always carry serious consequences if you default. You could lose property or serve a jail term. Such debts include, state taxes, mortgage, rent arrears etc. Defaulting on state taxes might amount to a jail term while defaulting on rent or mortgage might lead to loss of a home.
Non-priority debts carry less severe consequences
if you default. These are debts from colleagues, friends, relatives,
bank over drafts, etc. They do not adhere to strict deadlines for
repayment. As a debtor you decide which debts are of a priority nature
and deal with them first. Keeping record of your debts is very important
for budgetary planning purposes.
For all kinds of debt, it is
always important to keep in touch and explain to your creditors your
financial situation and your plan to sort out your issues. This can save
you from costly legal action and possible loss of properties.
Forms of Debt
There are several kinds but the following are most common; atleast everyone one incurs in their lifetime.- Auto loans and insurance
- Bank loans and overdrafts
- Credit card loans
- Mortgage and rent Arrears
- Health and life Insurance
- State and council taxes
- TV and media license
- Utility and Phone bills
- All forms of borrowings from colleagues, friends and relatives
- Payday loans
- Student loans
- etc
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