Introduction to Banking
Strategies To Avoid Excess Debt
So, to tackle this colossal debt crisis, here are a few strategies to control excess debt:
- Living within means: As mentioned earlier, the easy availability of funding gives people the false impression that they have money, although they don’t. It is advisable to understand what one can afford and make purchasing decisions accordingly. Every household has some necessary items that are required every month such as groceries and utilities and some luxury items that are optional such as vacations. Making prudent decisions considering one’s spending power is the best way to avoid the accumulation of debt.
- Paying off the total amount in a credit card: Most people who are in the debt trap have high unpaid credit card bills. Full payment of credit cards is absolutely essential to control one’s debt situation.
- Building an emergency savings fund: Everyone should keep aside a certain sum of money every month for emergencies only. Emergencies always come unannounced. Having a designated fund for emergencies will help someone meet the expenses and avoid taking any loans during that phase.
- Investing in insurance: Medical treatment is becoming more and more expensive. Having a good medical policy is the best way to meet treatment costs. This also negates the requirement to take debt for such purposes. It is also essential for the main earning member of the family to have a good insurance policy so that the family does not fall in trouble in case of the death or disability of the earning member.
What are the various strategies that can be employed to control Existing Debt?
Thousands across the world are already burdened with huge amounts of debt. Here are some strategies to manage already high amounts of debt:
- Avoid further accumulation: The first thing to do is to stop accumulating more debt. The person facing the situation needs to control spending to stop piling up the load.
- Take stock of the situation: The next step is to understand the situation. This will include making a complete list of all the amounts that the person owes to different institutions.
- Work out a payment plan: The final step is to make a payment plan. The person needs to understand how much he/she can afford to pay per month and then make a plan to pay out the debt one by one. The ones with the highest interest rates should be paid out first.
A little bit of discipline is all it takes to clear out a debt situation. Although the task might look massive in the beginning, however, a few months of discipline will make the entire situation quite manageable.