Tips for Avoiding a Debt Meltdown

By: Boris_Dzhingarov

Debt is difficult to avoid at times. Most of us don’t have a spare $500k to buy a nice home and we can’t often afford to splash out on a new RV without taking out auto finance. But, whilst some debt is unavoidable, far too many people end up sinking into a quagmire of debt they have no chance of escaping.

Credit card debt in the US now surpasses the $1.02 trillion owed on plastic in 2008. This is extremely worrying for many economists, as it indicates the American economy could implode if interest rates rise unexpectedly. Much of this debt relates to auto loans and student finance rather than home loans, which was not the case in 2008, but it is still a big concern.

A Debt Hangover

The biggest problem with debt is that the hangover stays with you for a very long time. Even though you may have paid off your debt and moved on, black marks remain on your credit file and lenders still view you as a high-risk customer. There are a few legitimate credit repair companies out there, which will help, but it’s much better to avoid getting into debt in the first place.

“Credit repair is often mistakenly viewed as some sort of last resort for those who are teetering on the brink of bankruptcy, but that’s not the case," say CreditRepair.com representatives. "In fact, monitoring and repairing credit history is a far smarter and more valuable move for someone who still has the means to take positive steps toward paying off their debt than someone who’s already so far over their head, few other options exist."

Instead, keep a close eye on your credit file and watch out how much personal debt you have. It is very easy to take out credit cards and apply for personal loans these days. In fact, it is downright tempting!

Low-Interest Rates

Interest rates are extremely low and this makes repayments manageable. The problem comes when interest rates rise and inflation kicks in. Suddenly, your pay check doesn’t go as far and you have less disposable income. By the time you are in this position, all it takes is one unexpected bill and you are sunk.

You can avoid getting into too much debt by budgeting for every dime you spend. Don’t spend frivolously. Consider whether you need to spend the money or if you can live without a new car, kitchen, or vacation. If you can’t live without a new car, do you really have to splurge on a new one or would a decent quality used vehicle suffice? Sure, you need a vacation, but why not go camping on the cheap rather than book a luxury resort hotel in Maui?

Work to a Budget

Work out how much disposable income you have and push any spare money into paying off debts first and then into a savings account. Once you have at least three months’ savings, then you can afford to spend a bit on treats. But, don’t make a habit of wasting money. In most cases, we can live without material things!

By Boris Dzhingarov

© 2017 Copyright Boris Dzhingarov - All Rights Reserved
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