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Do you have any advice in dealing with debt?
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5 answers
Updated
Doc’s Answer
AVOID DEBT
The best financial option is, of course, to avoid debt entirely, rather than dig yourself out of a hole. If your bank account is in the green, make sure to keep it there. Deposit a consistent percentage of your weekly paycheck in the savings account until you have built at least a six-month emergency fund.
• Make a budget, and stick to it. This is by far the best way to manage your money effectively. An accurate account of spending is the best way to address debt problems.
• Set realistic financial goals. Don’t expect to get out of debt overnight. It usually takes a 3-4 year plan to pay off all debts and establish a solid financial foundation.
• If you can’t pay cash, don’t buy it. That goes for every purchase, except a home. Having to pull money out of your pocket is an excellent way to avoid impulse purchases.
• If you use a credit card, pay on time and pay more than the minimum amount due.
• Monitor your credit card accounts for changes in rates or fees.
GOOD DEBT VS BAD DEBT
Not all of it is bad, yes, there is such a thing as good debt. Most students would not be able to afford a car or a college education if they didn’t take out loans to pay for it. Anytime you borrow money and use it to generate more income, that’s consider “good” debt. Take student loans, although you’ll be in debt for several years after school, a college graduate can expect to earn at least $1 million more than someone with a high school degree. The extra money you earn will make up for the cost of money borrowed to attend college when done correctly.
Bad debt is the opposite. It’s credit you get on impulse or for non-essentials, and without planning for repayments. For example, if you take out a credit card to buy something you couldn’t otherwise afford, and you’ll struggle to keep up with repayments, this is bad debt. With bad debt, you would likely end up paying more interest or fees than necessary. Bad debt tends to be more stressful, and a lot more expensive. How much debt you can afford is based on your income and your ability to pay. There are warning signs that you have too much debt or are about to lose financial stability.
• You didn’t really need the item. Very typical of credit card purchases.
• Over time, is an increasing percentage of your income going toward paying debts?
• Pay your bills late because you don’t have enough money?
• Have you maxed out your credit limit(s)?
• Are you constantly worried about money?
• You can’t afford repayment plan. This impacts a lot of consumers, but especially inexperienced ones who don’t factor in the cost of borrowing money
CONSEQUENCES OF MISSED CREDIT PAYMENTS
There are always consequences if you don’t pay debts on time. How serious these are will depend on how much you owe, and who the credit lender is. If you miss repayments for credit, the following steps are likely to happen:
• After missing a payment deadline, you’ll get a reminder urging you to pay as soon as possible. Once this grace period runs out, you could be hit with penalty fees or extra interest.
• Ignoring reminders or regularly missing payment deadlines will trigger a scarier-sounding written warning, and/or an invitation to get payment advice from the lender.
• If you continue to build up more debt without paying it back, your lender might take steps to limit the damage (i.e. they could block your credit card).
• Some lenders may threaten to take you to court, or hire a debt collection agency to get you to pay up. They may try to add the cost of this to your debt as well.
Any of these stages can affect your credit score. Late penalties and County Court Judgments (legal action against unpaid debts) can sit on your credit file for six years, so take action or get advice as early as possible. Remember that falling behind on one debt can affect your other finances, too. For example, overspending on an overdraft could leave you too skip payments on other monthly bills, meaning you fall behind on those payments as well.
It’s important to keep to your budget.
The best financial option is, of course, to avoid debt entirely, rather than dig yourself out of a hole. If your bank account is in the green, make sure to keep it there. Deposit a consistent percentage of your weekly paycheck in the savings account until you have built at least a six-month emergency fund.
• Make a budget, and stick to it. This is by far the best way to manage your money effectively. An accurate account of spending is the best way to address debt problems.
• Set realistic financial goals. Don’t expect to get out of debt overnight. It usually takes a 3-4 year plan to pay off all debts and establish a solid financial foundation.
• If you can’t pay cash, don’t buy it. That goes for every purchase, except a home. Having to pull money out of your pocket is an excellent way to avoid impulse purchases.
• If you use a credit card, pay on time and pay more than the minimum amount due.
• Monitor your credit card accounts for changes in rates or fees.
GOOD DEBT VS BAD DEBT
Not all of it is bad, yes, there is such a thing as good debt. Most students would not be able to afford a car or a college education if they didn’t take out loans to pay for it. Anytime you borrow money and use it to generate more income, that’s consider “good” debt. Take student loans, although you’ll be in debt for several years after school, a college graduate can expect to earn at least $1 million more than someone with a high school degree. The extra money you earn will make up for the cost of money borrowed to attend college when done correctly.
Bad debt is the opposite. It’s credit you get on impulse or for non-essentials, and without planning for repayments. For example, if you take out a credit card to buy something you couldn’t otherwise afford, and you’ll struggle to keep up with repayments, this is bad debt. With bad debt, you would likely end up paying more interest or fees than necessary. Bad debt tends to be more stressful, and a lot more expensive. How much debt you can afford is based on your income and your ability to pay. There are warning signs that you have too much debt or are about to lose financial stability.
• You didn’t really need the item. Very typical of credit card purchases.
• Over time, is an increasing percentage of your income going toward paying debts?
• Pay your bills late because you don’t have enough money?
• Have you maxed out your credit limit(s)?
• Are you constantly worried about money?
• You can’t afford repayment plan. This impacts a lot of consumers, but especially inexperienced ones who don’t factor in the cost of borrowing money
CONSEQUENCES OF MISSED CREDIT PAYMENTS
There are always consequences if you don’t pay debts on time. How serious these are will depend on how much you owe, and who the credit lender is. If you miss repayments for credit, the following steps are likely to happen:
• After missing a payment deadline, you’ll get a reminder urging you to pay as soon as possible. Once this grace period runs out, you could be hit with penalty fees or extra interest.
• Ignoring reminders or regularly missing payment deadlines will trigger a scarier-sounding written warning, and/or an invitation to get payment advice from the lender.
• If you continue to build up more debt without paying it back, your lender might take steps to limit the damage (i.e. they could block your credit card).
• Some lenders may threaten to take you to court, or hire a debt collection agency to get you to pay up. They may try to add the cost of this to your debt as well.
Any of these stages can affect your credit score. Late penalties and County Court Judgments (legal action against unpaid debts) can sit on your credit file for six years, so take action or get advice as early as possible. Remember that falling behind on one debt can affect your other finances, too. For example, overspending on an overdraft could leave you too skip payments on other monthly bills, meaning you fall behind on those payments as well.
It’s important to keep to your budget.
Thank You Dexter for your Contributions to the Future. When you are grateful, fear disappears and abundance appears.
Doc Frick
Thank You for Continued Support Ro. You see, in life, lots of people know what to do, but few actually do what they know. Knowing is not enough! You must take action.
Doc Frick
Updated
Richard’s Answer
If you can keep your expenses down (live with parents, attend community college which can be free in some cities, complete your degree at an inexpensive public institution etc) debt doesn't have to be out of control. However the typical student does not do everything they can to decrease expenses then has to be stressed during their first years of practice.
Time to repay depends on the total amount of debt and starting salary. Generally salary is a function of specialty and location. Less desirable locations pay more.
But typically you are looking at 10-15 years to pay back your student debt.
Time to repay depends on the total amount of debt and starting salary. Generally salary is a function of specialty and location. Less desirable locations pay more.
But typically you are looking at 10-15 years to pay back your student debt.
Updated
Henry’s Answer
Hi Daniela, first and foremost, you need a plan to reduce it. What are the possible ways you can do to save more and payoff your debt is ultimately the question. I can certainly appreciate most people would say this is easier to say than done but I can tell you that it can be done.
About 15 years ago, I came to read an article talking about an American woman on how she paid off her debt in 5 years and I have followed her approach ever since. What she did was every time when she gets a $1 bill whether from the changes she got after each purchase or from a friend, she would not use it. She put it asides and if she has no other bills, she would just not spend any money. For myself, I added another feature to this plan by imposing a penalty if I ended up using the $1 bill. The penalty is that I would put $2 back into the pool for each $1 bill I used. You will be surprise by how much you saved in one year and this money is most likely spent on something you could not even remember had you not follow the rule. Try it, you will be rewarded.
All the best
Henry
About 15 years ago, I came to read an article talking about an American woman on how she paid off her debt in 5 years and I have followed her approach ever since. What she did was every time when she gets a $1 bill whether from the changes she got after each purchase or from a friend, she would not use it. She put it asides and if she has no other bills, she would just not spend any money. For myself, I added another feature to this plan by imposing a penalty if I ended up using the $1 bill. The penalty is that I would put $2 back into the pool for each $1 bill I used. You will be surprise by how much you saved in one year and this money is most likely spent on something you could not even remember had you not follow the rule. Try it, you will be rewarded.
All the best
Henry
Updated
Michael’s Answer
Hi Daniela,
Debt is one of the biggest challenges anyone would go through. Whether you are dealing with a house, credit card or loans, it can be stressful.
The most important word here is "Manage".
Managing your debts.
We will all get into debt at some stage of our lives but it depends on how you view this because some debts can be healthy for you to (As an example) gain a house from your credit score, but it can be draw-dropping for some when we get into the subject.
I would set up a simple spreadsheet, with all of your expenditure.
- Loans
- Phone
- Insurance
Etc
Then work out how much you gain or earn. This can then tell you first of how much money is left after these debts are paid. The reason why this is helpful is that it makes us realise how much debt we are in and how we can manage this moving forward.
If on the other hand, you have no debts, then I would simply say "Live within your means". The trouble with some individuals is that they don't have te money to pay for things and seek credit or loans etc. And that is where it begins.
So Manage your debts if you have them or Live within your means if you haven't got any debt.
Hope this helps
Mike
Debt is one of the biggest challenges anyone would go through. Whether you are dealing with a house, credit card or loans, it can be stressful.
The most important word here is "Manage".
Managing your debts.
We will all get into debt at some stage of our lives but it depends on how you view this because some debts can be healthy for you to (As an example) gain a house from your credit score, but it can be draw-dropping for some when we get into the subject.
I would set up a simple spreadsheet, with all of your expenditure.
- Loans
- Phone
- Insurance
Etc
Then work out how much you gain or earn. This can then tell you first of how much money is left after these debts are paid. The reason why this is helpful is that it makes us realise how much debt we are in and how we can manage this moving forward.
If on the other hand, you have no debts, then I would simply say "Live within your means". The trouble with some individuals is that they don't have te money to pay for things and seek credit or loans etc. And that is where it begins.
So Manage your debts if you have them or Live within your means if you haven't got any debt.
Hope this helps
Mike
Updated
Tia’s Answer
To piggyback on Mike's answer. Just because your student loan offers you thousands of dollars, you don't have to spend it all. Once you know your budget, use your loan money for those items only. Throw everything else in a high interest savings account as an emergency fund. Typically the money you borrow doesn't start charging interest until 6 months after you leave school. So save that money and let it earn you interest and then one month after graduation, pay back the principal amount sitting in the account.