If you are reading this, you are most likely carrying a certain amount of debt yourself. The truth is that today, it is really hard to find a person, especially in the United States of America, who is completely free from debt. Of course, reaching a state of freedom from debt is something that everybody wants to achieve. However, actually doing it is an extremely hard task. To go into debt in first place, you need to be facing some financial issues. Once you start carrying debt, it is highly unlikely for your normal financial problems and all the bills that you pay to suddenly disappear. Adding to all that, you will also have to repay your debt. And so, it is easy to see why freedom from debt is such a hard thing to achieve. However, no matter how hard it is, if you are in a position where you are constantly stressing over your finances, having trouble falling asleep at night, that is simply not a way that life should be lived. So if you are in a similar situation, you need to do everything that you can to make your situation better, and to ultimately reach the goal of debt relief. But first, let’s explain what debt actually is.
Definition of debt
Debt is basically an obligation or a duty to pay a certain amount of money, render a service under an implied or express agreement, or deliver certain goods. When we are talking about debt, there are normally two sides of the coin – the one who is owing money, goods, etc, is called a debit or or a debtor; the one to whom the goods or the money is owed is called a creditor, debtee or a lender. When a debt is used in the financial structure of an organization, it creates a financial leverage that may multiply yield of investment on investment given returns that are generated by debt exceed its cost. And a debt’s interest rate can very well be written off as an expense. Normally, debt is considered to be the cheapest type of long-term financing.
Reasons to find yourself in debt
The reasons of going into debt are various and yet quite similar. Logically, people do not go into debt because of their desire for it, but because of necessity. When you are unable to pay your monthly bills and do not have the luxury of borrowing money from your friends or family members, you have to find a way to make that payment. And when you do not have the needed cash on hand, the only for to deal with such a situation is to seek out financial assistance from the loan lending industry. And the fact that this is an industry that is constantly growing is saying enough about the overall state of the economy and how people are dealing with it. Once you take out a loan, whether it is from a traditional loan lending institution such as a bank, or you get it from a private loan lending company, even though the loan would probably do the job for the moment, once you start repaying it, it is highly likely that you may encounter another difficult financial issue that forces you to take out yet another loan. The most common reasons for going into debt include:
Emergency expenses are probably the most common reason for people to go into debt. Unexpected emergency expenses are something that often even those with stable jobs and good monthly income cannot afford to deal with on their own. An emergency expense can be anything from a health problem to your car breaking down on your way to work. Whatever the emergency expense is, it usually throws people off the rails and forces them to take out a loan.
You can go into debt by making the conscious decision that you want to buy yourself a house. For most people, buying a house is equal to taking out a home loan. That is because, affording such a purchase is almost impossible for many people. And so for all of them, taking out a loan becomes their only way of buying a house.
Student loans are nothing new, though, certain things about them have definitely changed over the last decade. While they are still considered as a sort of good debt due to the fact that they serve as a self-investment, student loans can also be quite hard to repay. The motives behind taking out such loan are pretty obvious. Unless your parents made you a college fund or you are able to get in college with a full scholarship, usually the only way to afford a college education is to take out a student loan.
Getting out of personal debt
Now that we have explained what a debt is and discussed the various reasons why people go into debt, let’s look at what you can do once you are in such a situation.
The ideal process of debt consolidation
Debt consolidation means combining all existing debts into a single monthly payment. Debt consolidation commonly includes home equity and personal loans, credit card balances, car payments and mortgage debt. Nowadays, there are many loan lending institutions that offer a number of different debt consolidation options. Online private companies and organizations also offer many different debt consolidation programs. Since they are online, you can easily compare them and make a decision on the one will serve you best. When done properly, a debt consolidation normally results in a lower interest rate payment, an overall lower debt monthly payment and in an increase in the amount of monthly discretionary income. A correctly done debt consolidation, given the lower interest and monthly debt payment, can be enough to help you free up some room to take care of some other expenses. When you are already able to make your monthly payments on your loan, you can use any extra money that you have left at the end of the month towards your debt repayment to get rid of your debts as fast as possible.
When debt consolidation do not go as planned
There are many people who use debt consolidation as their preferred method for managing multiple debts. However, that method is not always as successful as you may think. For many people who used debt consolidation, the very fact that they need the help of this financial tool to get control over their finances is often a sign that they have most likely been doing a really poor job at keeping control over their finances. It is true that sometimes even the best of effort is not enough to keep you safe from financial trouble. However, if you manage your finances well, the chances of sinking deep in debt would be a lot lower. If a person already has bad financial management habits, after consolidating his debts, these habits are not likely to suddenly change. Even worse, after debt consolidation, people no longer feel the pressure of repaying their debts,. What they do is, they start spending more cash on other stuff. Such people do not realize that debt consolidation is not some magic trick that will resolve all their financial problems overnight. It is a slow process, something that requires all the commitment that a person is able to give in order for it to be successful. And so all the people who do not realize all that, shortly after consolidating, go on to add additional debt on their credit cards. It’s like they are back where they had started.
Change your habits or debt consolidation will not be a solution to your problems
Deciding to consolidate your debts is the first step towards regaining control over your finances and reaching debt relief. But unless you change the behavior that got you here in the first place, you will not see any real result of debt consolidation. For it to work and have a lasting and meaningful impact on your overall financial state, you would need to stop spending money on things that you do not need. You would need to stop spending money that you have not earned yet and break the debt cycle once and for all.