No matter how you hate the idea of having a debt, it is still inevitable given the circumstances that no one is born ready for uncertainties especially events that are unexpected. Almost everyone has their loads of financial burden including DEBTS which comes in different sizes. And this problem boils down to the following questions:
● How do people end up having towering debts?
● What must be done to avoid it?
● If it not avoidable, how can you manage it?
To understand this further, people must learn financial literacy. By definition, financial literacy refers to having the ability to understand the essence and relationship of money to everything. It involves having a set of financial skills such as personal financial management, budgeting, and investing.
All about Debts
Debts refer to anything a person owed to
someone or a financial entity. It could be in a form of property, money, or
services. But in finance, debt is defined as the accumulation of money through
the issuance of bonds. Now, the question is why do people end up full of debts?
Factors can be grouped using the following categories of debts:
●
Mortgages or loans refer to
borrowing money from a financial institution, usually a bank, to buy properties
like a house or lot.
●
Investor Debt is associated
with borrowed money used for investments.
●
Personal Debt refers to
loans made for personal pleasure and leisure activities like vacations.
●
Student Debt is an applied
loan given for students which enables them to finish their degrees.
● Credit Card Debt is borrowed funds used to purchase products or
services.
A Tenfold Way to Debt Management
According to the book entitled “The Richest Man in Babylon” by George S. Clason, to make yourself debt-free you must do the following:
1. Pay yourself first by saving 10% of your earnings.
2. Spend and live within your means.
3. Invest your money on other streams of income.
4. Only entrust your investments to credible and well-experienced
field experts.
5. Become a homeowner for it saves you from fluctuating and expensive
rental fees.
6. Save for your retirement and avail yourself of insurance.
7. Invest in yourself by acquiring valuable skills.
8. Do business to where you are good at.
9. Pay your borrowed money on time and only lend money to good
payers.
10. Practice the 70/20/10 budget rule.
a. 70% for necessities.
b. 20% for paying your debts EQUALLY.
c.
10% for savings.
Alternative Solution
If you are still unsure where to start with your debt management, an alternative favorable solution is offered by the banks debt consolidation loan to aid you in paying off your other liabilities by providing advantageous terms such as lower interest rate, lower monthly payment, or it could be both. Along with this is a clear repayment schedule as your guide.
