Bad debt happens when you give a partial payment towards a loan amount. When you do not settle the amount, the bad debt still exists. Consider asking these questions before making financial obligations.
- Do I need it in the first place? Is it a need or a want? If it is a need, you can save up and buy it later.
- Is there an alternative way I can pay for this rather than owning something on credit? You may try to meet the requirements for subsidies or grants. Find other ways like trading or renting.
- I already have other monthly costs can I still afford it? Check your budget to see how much you have left for the debt repayments after meeting all your monthly expenses and savings.
- How much should I borrow? Try to reduce the loan amount as much as possible by making as large a first instalment as you can afford.
- How much must I pay every month? Do not allow your debt repayments to take up a large percentage of your pay.
- How long will it take to pay off my loan? The longer it will take to pay off the mortgage the more interest it will acquire. Make informed choices when deciding on a comfortable repayment period.
If you are not reducing debt faster than you collect it, it can be disastrous. Do your calculations to see if you are debt heavy. Here are early warning signs if you are carrying too much debt.
- Your income is less than what you spend.
- You skip payments on accounts to pay others.
- You make smaller payments on your credit cards.
- You have exceeded your credit card limits.
- You are receiving late payment notices.
Plan an accurate budget and follow it. Have a debt reduction plan by paying off debts that have a higher interest rate first. Do what is best for you by continually reducing what you owe. Simplify your lifestyle. Drive a less expensive car or sell your house and get a smaller bond payment. Find ways to cut back, spend less and save more.
Look into your choices for a higher paying job or get a second part-time job to increase your monthly income.
Try to make saving part of your monthly budget. It takes commitment and discipline, and a lot of money smart people save at least 15% of their income every month.
Talk directly to your creditors. Many will work out a revised payment option. If they know your dedication to paying off your obligation they sometimes cut their fees.
Debt is not the problem but being responsible about how to repay it is. Lessoning your debt and managing your cash flow is crucial to your financial health.
Debt advisors can help you to manage debt effectively.