Debt is a hole you can plunge into deeper and deeper very easily and very fast! The best intentions can be there when borrowing some money to sort out an emergency, help finance your education or business, etc, but then you find yourself unable to repay it. Many factors can tip your borrowings into bad debts that become a burden to you over time.
You don’t want to dig yourself further into a hole by accruing more debt. Based on your last experience, we agree that the less debt you have the better right? Good. You can avoid future debt by doing some very important things as mentioned below.
Analyse to see if going into debt is worth it
If you are thinking about borrowing some money again, do some critical analysis to see if what you’re borrowing the money for is worth it in the first place. To help you out, before you take that loan, you need to stop and ask yourself these 5 important questions;
1. Is this expense something I really need right now?
Is it an immediate need that has to happen now in your life or can you forgo it for later if at all?
2. Can I save up for it over time instead?
For non-emergencies and the nice-to-haves, saving up for a purchase rather than borrowing is a better route in my opinion. Your pocket and soul would be happier.
3. Is borrowing really my best option?
Maybe there is some other way you can raise the funds such as through the help of friends and family.
4. Can I afford to pay back everything realistically?
Is there an air-tight plan (plus backups) that would enable you to pay the money back in time?
5. Are the terms of the repayment favourable?
The interest rate, time frame, collateral to give, and all. Always read the fine print and know the terms and conditions obtainable.
If your answer is NO to any of these questions, you should think twice about borrowing.
Managing your money better helps you avoid debt
If you’re able to plan your finances very well, you can avoid debt. Using a budget and tracking your expenses is the only objective way to know what’s happening with your money so you can tighten up any leaks and spend more wisely.
Create an emergency fund
Those annoying unexpected and sudden expenses that crop up and make you want to borrow money to sort out? Those can be handled more comfortably with a well-set-up emergency fund. You would be doing yourself and your financial health some good by creating one.
Live within your means to avoid debt
Spending all you earn is a problem. Spending more than what you earn is debt! So you have to ensure you are spending below what comes into your coffers. Do the math and only spend on what you can afford. Don’t be tempted to do otherwise.
Increase income sources
Sometimes even with the best money practices, your current cash flow is just not enough to handle ever increasing expenses. Increasing your sources of income is important so you don’t end up borrowing.
To wrap up
If you can avoid borrowing money altogether, it is much better to do so. Being a debtor, and worse still one with a bad reputation is not enviable. The stress and anxiety from the debts haunting you are a hassle you do not need in your life. Set a goal to be totally free of debt and shun the temptation of borrowing.
Understanding your money situation and avoiding getting into unnecessary debt is one reason being financially literate is so important. Always remember that a debt-free life is goals and peace of mind is priceless.
Would you want some assistance in managing your debt? Send a message and let’s discuss it.