Debt is a common phenomenon nowadays. Everyone has some kind of debt and the amount varies from person to person. There are three types of debt: consumer, mortgage and credit card. Consumer debt refers to all purchases carried out with borrowed money. In contrast, mortgage debt is due to pay back the loan taken out by purchasing a house. Credit cards fall under the category of personal loans given to individuals for buying goods without having enough money saved. All these forms of debt increase during economic downturns. How would you manage your debts? Read on and find out more in the article.
1. What Is Debt?
The term “debtor” means someone who owes something to somebody else or that which he/she owes somebody else. A debtor is also known as one who owes an obligation or duty. In terms of finance, debt can be defined as any money owed to any entity (individual, company etc.) which must be paid back at a later date. Therefore, it should be noted that a debtor does not necessarily have to be a borrower. For instance, a person who gets free medical care from his/her employer may technically owe nothing, since they are receiving benefits but not making any payments. On the other hand, if the same individual were to borrow money from another source to pay for their health treatment, then he/she will be considered a debtor.
2. Types of Debt.
There are three broad categories of debt as mentioned above i.e., consumer, mortgage and credit. They differ vastly in terms of their nature. Consumer debt includes things like utility bills (electricity, water, gas etc.), rent and grocery bills. These kinds of debts are incurred by consumers directly. Mortgage debt is usually taken out by individuals to purchase property or make major investments. Credit cards are personal loans offered by banks and financial institutions to individuals so that they can buy whatever they want.
3. Best Ways to Manage Your Debts.
A good way to manage your debt is by setting aside a portion of your income towards repayment. This can be done either through direct deduction or indirect deduction. Direct deductions involve taking funds out of your paycheck and putting them into a separate account dedicated solely to repaying your debt. Conversely, indirect deductions include using those funds to pay off other expenses such as groceries, utilities or even school fees. Read on further to know about the best ways to manage your debt.
· Set Up Automated Payments.
Automated payment systems allow you to set up regular payments based on your desired schedule. For example, if you owe $500 to your bank, you could choose to make a monthly payment of $25. You could also set the system to automatically deduct certain amounts from your checking account each month, depending on how much you owe. If you do not have access to your computer, you could always use online banking services provided by your lender. Most lenders offer automatic bill-pay options at no cost. However, be sure to check with your specific lender to confirm.
· Cut Down Spending.
If you have trouble managing your finances due to excessive spending, cut back on luxuries such as eating out, going to the movies, and buying expensive items for yourself. It is better to live within your means than spend money you don’t have. There are plenty of budgeting tools on the internet which can help you track your expenditures and determine where you can save some extra cash. A few websites that provide this kind of service include Mint.com, YNAB and Personal Capital.
· Consider Alternative Methods.
In some instances, paying off your debt isn’t as easy as it may sound. In cases where you feel unable to repay your debt, consider alternative methods of payment. Many people opt to work with debt consolidation companies and negotiate lower interest rates with their creditors. Another option would be to apply for government assistance programs such as the Payday Loan Consolidation Program. These financial relief programs aim to help individuals who lack the resources required to pay off their debts. By applying for one of these programs, you can qualify for debt settlement solutions, debt management plans, and low-interest loans. Be aware that there is usually a requirement that you prove your inability to repay your debt independently before accepting any kind of loan.
The Bottom Line.
Debt is never a good thing, but it doesn’t need to define your life. With just a little bit of planning and a lot of hard work, you can take control of your finances and lead a new lifestyle free from the fear of repaying debts. Remember, it takes more than just cutting down on spending to get out of debt; you’ll have to develop a plan that works for you. Do not let debt consume your life, instead, use it as motivation to change your financial future and play Australian online casino games .