All You Need To Know About Debt (And How To Avoid It!)
Taking care with debt
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Today’s article will focus on one of the biggest problems in the financial world, debt. There are millions of people that end up in debt all the time. Both individuals and businesses are guilty of suffering from this problem. No doubt if you turn on any financial news program, they’ll be talking about debt in one way or another. In fact, entire countries are often in heaps of debt too!
In this piece, I’ll help you understanding all there is to know about debt. Firstly, we’ll take a look at what debt actually is. Then, we’ll see the main causes of debt, as well as some ways in which you avoid it. By the time you’ve finished reading this article, you’ll be a debt master. All the knowledge will be yours, and you can ensure you stay out of debt and in a good financial situation.
So, without further ado, let’s get on with things!
What Is Debt?
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For those that don’t know, debt is when you owe someone something. Financially speaking, it’s when you owe another party a sum of money. Typically, this happens when you borrow a large sum of cash, with the intention to pay it back. You can end up in debt by borrowing money from anyone or any company. Furthermore, debt is usually required to be paid back with interest, unless you’re in debt to a family member. Paying the money back with interest means that the lender earns money from lending you some cash.
Common Causes Of Debt
Debt is a fairly easy thing to understand, and end up in. There are many ways for people to fall into debt in this day and age. Below, you’ll find some of the common causes:
Poor Financial Decisions
Arguably the biggest cause of debt is poor financial decisions. This is something that applies to both individuals and businesses. People will make the decision to spend lots of money on something they can’t afford. For example, a business may spend loads of its money on a big fancy new office. However, they can’t afford to keep up with the high rent payments, and end up in debt to their landlord. Similarly, you can say that starting a business gets people into debt. They take out a big business loan and are ready to start a company. However, they end up spending the loan badly and can’t pay it back. Their business is failing, and they fall into massive debt. People need to take the time to figure out whether or not starting a business is a good financial decision.
Then, you have minor personal finances mistakes that result in debt. For example, spending too much credit on your credit card. This is a top cause of debt and puts millions of people in tough financial situations. It’s not a clever financial decision to max out your credit card because you’ll struggle to pay it all back. Similarly, you have people that take out small loans to help them afford stuff. The payday loans market is booming, and almost everyone is borrowing small sums of cash to give them a boost. The problem is, they can’t make the repayment on time, and end up paying loads of interest. The result is a lot of debt, and a bad financial situation.
Gambling
One of the biggest causes of debt has to be gambling. It seems like no matter where you turn; you’ll be confronted by some form of gambling. The streets are littered with betting shops, and the internet is packed full of casinos. Not to mention all of the TV adverts that promote betting and gambling to an entire nation. I’m willing to bet that the majority of people reading this have gambled at least once in their life.
It’s a serious issue that can lead you to all sorts of financial problems. People keep on gambling because it’s so addictive. You’re literally throwing your money away, and rarely ever win. When you spend all of your money gambling, you don’t have enough left to pay for important things. Bills go unpaid; rent is missed; you end up with loads of financial debt. There are countless stories of people with gambling addictions that end up in debt and losing their assets. They have their house repossessed and are thrown out on the street. I’d say gambling is probably the most serious cause of debt out there. Purely because it’s fuelled by addiction, so, when you start, it’s hard to stop.
High Medical Expenses
Now, there are some medical treatments that you can get for free. However, there are plenty that requires you to spend lots of money. If you end up with a medical emergency, the costs can ramp up very high. And, this applies to all areas of your health too. Dental treatments, hospital bills, operations; you name it. They can cost a lot, and put you in a tough place.
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If you have to spend lots of cash on unexpected medical payments, then you may end up in debt. It’s a real problem because there’s nothing you can do. You need to pay for a big operation and end up with two options. Firstly, you use the money in your bank account to cover it. This then means that you have a very low account balance, and may miss some important payments. Secondly, you could get a loan and pay for the operation using it. Either way, you end up in debt to someone, somewhere.
Avoiding Debt
After reading the common causes of debt, you might be a little bit scared. But, don’t worry, debt isn’t something you have to have. There are some simple ways for you to avoid it:
Save, Save, Save
It’s amazing how many people can avoid debt if they saved money. By this I mean opening a proper savings account, and setting up a direct debit. Deposit money in there every month or so, to ensure you have a backup fund. Then, if you ever have unexpected payments, your savings can help you afford them. Similarly, they can be used to help pay for business ventures or your monthly bills. Saving is one of the top ways to avoid any financial trauma. The best thing is, it’s easy to create an account and start saving. There’s really no excuse not to do it.
Make Smart Financial Decisions
Making smart financial decisions is another way of avoiding debt. Buying a load of expensive items on your credit card isn’t a smart thing to do. So, don’t do it! Be aware of what you can and can’t afford. My advice is to make a simple budget for your monthly spendings. Calculate how much you need to spend on food and other essentials. Then, you can see how much cash you have left over for things that aren’t necessities. This should help you stick to a system where you don’t spend more than you can afford, and end up in debt.
Don’t Gamble
My final tip is simple, don’t gamble. I could write an entire article on the dangers of gambling both financially and mentally. There’s no reason to get involved with gambling, especially if you have an addictive personality. There are ways for you to get your gambling fix without spending any money at all. Play poker with your friends and don’t use real money. Or, instead of betting on sports, make free predictions that don’t cost anything. Once you start gambling, it can be hard to stop.
On that note, we’ve reached the end of this article. I hope it’s given you plenty of information, and helped you understand debt in more detail.
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