Living within your means is not as straightforward as it sounds. Even the most self-disciplined individuals can make poor choices that leave them in debt.
The main challenge is ensuring that you'll pay it back later and not be tempted to seek further credit. This article will point out ways to avoid getting caught in the debt trap. It will also highlight common habits that cause us to incur debt and manageable repayment methods.
What Is The Trap?
A debt trap means that your credit is too high to manage. This can either be due to interest rates, too much credit, or irresponsible lending.
Some people exacerbate the problem by applying for additional credit to sort out their existing obligations. Becoming engulfed in credit isn't difficult, and you may not even realize that it's happening.
How Do You End Up in Debt?
It's human nature to want instant gratification. When you can't afford something you desire or need, the easiest solution is to get it on credit. This and several other bad habits lead you to spend more than you can afford, and soon enough, there's a mountain of debt to your name. Some of these bad habits are:
- Using it to pay off other debt
- Opting to use credit for daily items like food
- Spending what you can't afford to pay back
- Using credit as if it's free cash
- Making debt for unnecessary luxury purchases
Smart Choices to Avoid Debt
Debt can have a positive impact if it's used correctly. Loans are usually required for Investments or houses, and in these cases, credit is beneficial.
It becomes a problem when you spend above your means, and it doesn't yield any tangible return. Making three small changes to your lifestyle will improve your financial wellbeing. These are:
- Start saving
- Reserve credit for emergencies and investment items
- Budget effectively
We will discuss each of these briefly.
Start saving
If you save a small amount every week and put it in a separate account, you'll have funds to fall back on. This will come in handy in the event of an emergency or unexpected event. Alternatively, you can use your savings to splurge on a luxury item instead of relying on credit.
Reserve Credit for Emergencies and Investment Items
If you have a credit facility, try not to access it for frivolous reasons. Only put yourself in debt if it's critical, or if you're making a purchase that will still bring you value after you've paid the money back. Items in this category include a home, car, or even a business.
Budget
Make a list of your weekly or monthly expenses and subtract it from your income. Don't make additional purchases and stick to the budget you've created.
How to Get Out of The Debt Trap?
If you already have debt, the first step is to stop accepting more credit. Then work out how much you can afford to pay back monthly and start consistently repaying your creditors.
When you have extra funds, aim to settle one creditor at a time rather than paying a bit more to each creditor. This will save you money on interest charges.
Conclusion
It's easy to give in to temptation and fall into the debt trap. To avoid it, you need to stick to a strict budget and reduce the debt you already have. It takes self-discipline and restraint to achieve, but you'll be less stressed out in the long run.