PAYMENT PITFALLS AND DEBT DOWNFALLS – PART 1

No one ever plans to fall into a spiral of debt, but sometimes challenges arise that cause the debt to build up around you before you have even realised how bad it is. This puts you in a debilitating position that can be difficult to emerge from. So, here are some points to consider to prevent you from being put in that position in the first place:

Lack of financial management
If you aren’t working with a budget then there is no way to keep track of what is essential and non-essential spending. You might know at the time, but when it comes to cutting costs you can’t clearly see where there are areas to tighten. If you are just spending until your cash is low and then using your credit card until the next payday, then things are going to look pretty grim after a year.

Signing surety
You should think twice before signing surety for a friend’s business loan or a cousin’s home loan. As much as you want to help, many people find themselves up to their ears in debt when their friend’s business goes under or their cousin loses their job. Don’t sign surety for an amount that you couldn’t afford to lose.

Sudden expenses
Have you got a contingency plan for sudden retrenchment? It is difficult to plan for periods of unemployment, but you will be glad that you did. A sudden loss of income can be the start of a bad debt situation. Medical expenses can also form a huge pile of bills, especially if you don’t have medical cover. If you’re not prepared to use state hospitals, you need to at least have some sort of hospital cover. Paying for private medical care out of your own pocket could create the kind of debt which haunts you for a long time.

Worrying about social status
We are constantly bombarded with advertisements that try to instill a subconscious correlation between happiness, social acceptance and the product that is being marketed to us. Buying items on credit to show off and convince yourself that you are normal and socially accepted is a fast way to debt. Don’t fall for branding hype.

A big part of not falling into debt is being able to manage your budget and differentiate between your wants and your needs. For example… you need to get to work, you want to get there in a Ferrari.

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Posted in Blog, common mistakes in financial planning, debt.