Take these steps so you don't have to go into debt.

“Debt is like any other trap, easy enough to get into, but hard enough to get out of.”

Henry Wheeler Shaw

Debt is the money you owe to a third party, usually a bank, to a credit card provider or some other type of lender; like someone having a lot of cryptos in his wallet.

When you borrow or loan crypto or money to purchase something, for example, a home or a car, you automatically get into debt, or when you use a credit card to spend money that isn't yours, giving a specified time to pay or return, you are already in debt.

When it comes to debt, there is always an agreement that enables the borrower to repay borrowed money over an inevitable period, sometimes with a fee or interest.

Many of us would have been in debt, either from a bank, using someone's credit card or borrowing some crypto tokens for investments, and most times to feed with the hope of repaying at a certain period. The lender might decide on adding some fee or interest, and if there is no agreement, the lender will not release his or her money or crypto to the borrower.

Debt is widely spread than ever in today's society. Looking at the data, it reveals that consumer debt has grown to more than $14.9 trillion in recent times which makes the average consumer have about $92,727 in debt. And as this keeps growing and is common, it is important to become aware of ways or understand how to manage debt.

Revolving versus Non-Revolving debt

Every debt is either revolving or non-revolving.

Revolving debt is the one where you continue to spend and pay off the debt. It doesn't have a fixed number of payments. Revolving debt is also the balance you carry from any revolving credit. An example of this is a credit card, also, a line of credit such as a home equity line of credit is a type of revolving debt.

Non-revolving debt which is also called instalment debt must be paid off over a specific period with an ‘agreed-upon’ payment term and interest rate. Examples of this are student loans, personal loans, mortgages and car loans.

Secured versus unsecured debt

For a secured debt, the lender can seize an asset from you if you don't make your payment at an agreed date. A secured debt is always secured by collateral or an asset. Examples of secured debt are mortgages and auto loans, and the lender can decide to seize your home or car if you do not pay them back.

Unsecured debts do not have any collateral behind them, but it does not mean the lender cannot take any legal action to get their money back. They will, but there is be no asset to seize from you.

There is a need to understand debt because you have to consider these things before going into one;

• Total balance in your account.

• Interest rates by the lender.

• Minimum monthly payments as agreed by the lender.

• Estimated payoff date which will be agreed upon between the borrower and lender.

Major causes of debt may be as a result of; (1) expensive life events such as; too many children or moving to a new house. (2) Another may arise from poor money management.

Ways to avoid debt.

• We all want to live a free life where we don't have to keep repaying what we have borrowed or loaned, but there are ways to keep away from debt which are;

• Setting a monthly budget. This can be done between three groups — necessities, wants and pending debit.

• Always pay with cash.

• Engage in emergency funds. This is very important.

• Avoid “buy now, pay later” deals.

• Limit the number of credit cards.

Also, you can effectively manage and reduce your debt by following these ways;

• Be in control of your account. Take account of it daily.

• Do not spend more than you earn. Be honest with your spending.

• Check your credit report.

• Determine how much you have to pay

• Lastly, figure out how much extra you can budget.

Thanks for your time.

Image by Karolina from Pexels.

[December 13, 2022] (No 332 articles for the year)