Who likes to be in debt? No one of course! But, is it unavoidable? Not always. When you are in debt, it is best to repay loans at the earliest. People tend to neglect debt and only address the problem, when things go out of control. That’s exactly how you fall into a loan trap. If you don’t manage your debt well, then you might have to face the consequences. You will never know when the situation gets out of hand. Debt if not managed well, not only harms your finances and long-term financial goals, but also peace of mind.
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It’s said that prevention is better than cure. There are many indicators which show debt has taken over your life. Imagine debt controlling you. How bad can it get! That is why you should identify the warning signals and take control of your debts.
An emergency fund should not be a go-to fund, when you are out of money, just because you don’t have control over spending. If you have been dipping into your emergency fund often, take this as an indicator that you will soon run out of money and be on the verge of debt.
If you have been postponing the insurance premium payments or have stopped them, you are most likely putting your family’s financial security at risk. If you think there’s no need for health, life or car insurance, then you are most certainly wrong.
You may be diverting most of your income towards repaying debt. If debt is what is draining your income, you need to think twice before availing another loan.
Assets such as a house, car, jewelry and so on, neither earn wealth nor give financial security. Your wealth is said to increase if your net worth keeps rising. Net worth does not include just assets, but also your liabilities. As such, a positive rise in net worth is a sign of growing wealth. A negative net worth on the other hand, is a signal for you to investigate what’s going wrong.
There are two types of assets that you can acquire:
If you have acquired appreciating assets with debt, your net worth improves only as long as assets appreciate in value. Once they start losing their value, your net worth falls. So, be careful before investing in assets which lose value with time.
Also, your investments impact your net worth. If you are dipping into investments to meet expenses and debt obligations, this is not a great sign.
If you are unable to pay utility bills on time, it’s time to assess debt obligations. Your debts may probably be draining income. Hence, you would be finding it difficult to meet daily expenses.
Are you unable to decide which creditor must be repaid first? If yes, it is clear you are struggling with debt. You have bitten off more than you can chew. In other words, debts are out of your comfort zone. If you are unable to identify which creditor to satisfy each month, it is high time you look into your debts.
First repay loans which charge high interest. If this cannot be done, replace high interest debt with low interest debt.
If you don’t pay credit card dues on time, not only will you pay a huge interest on the credit card dues but also have a bad credit score. A bad credit score will make it difficult for you to avail loans going forward.
Identifying these signals will help you address your debt condition as soon as possible. You don’t want to compromise your credit score due to a bad debt. You would never want to compromise your peace of mind owing to a mismanagement of debts.
Be Wise, Get Rich.
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