Manage Debts Effectively
It’s possible to use strategies and keep your debts under control!
The most crucial aspect is to be aware when taking on debt and to avoid getting carried away by tempting installment payment offers without considering the long-term consequences.
If you have ever found yourself in this situation, you should know that you are not alone in this financial challenge, as many people face high levels of debt. But how can you avoid falling into this trap?
Get to know your current financial situation
Develop a financial plan where you can keep track of all your expected personal income, such as salary, and your expenses, such as rent, utilities, food, and transportation, divided into monthly periods.
Get to know the total value of your debts and make sure you will be able to pay them off. If you are unsure of your repayment capacity, even after listing all your monthly income and expenses, avoid taking on more debts.
Prioritize needs over desires
Avoid falling into the temptation of applying for loans or using credit cards to maintain a lifestyle that is well beyond your actual means.
Before taking out a loan or using your credit card, ask yourself if you really need that item or if it’s just a whim.
Consolidate your debts in one place
When you have debts scattered across different cards and banks, interest rates vary and payments come at different times of the month.
This could result in not having a clear view of how much you are spending and paying on debts each month.
By consolidating your debts in one place, you gain a unified view of your financial obligations and can make more informed decisions.
By being aware of your actual needs and organizing your debts in a centralized way, you can establish a clear plan to pay them off.
Beware of long-term payments
When you are offered the option to pay on credit, especially in long terms like 12, 24, or 36 months, it is easy to deceive yourself into thinking you are spending less money monthly.
This illusion can turn into a major financial trap. For instance, if you choose to purchase a product and pay for it in 24 monthly installments, at the end of the period you might find out that the total cost paid is significantly higher than expected due to interest rates.
To avoid falling into this trap, choose payment deadlines that align with the lifespan of the item and avoid making purchases on endless payment plans.
Assess the discounts carefully
Saying “no” to offers can be a challenge. You might think you are making a smart purchase, but your mind is influenced by several factors.
Therefore, it is important to control your emotions when buying on credit, as sometimes the interest rates exceed the discount, meaning you will end up paying more than you should.
For instance, if you purchase a product with a 20% discount and pay for it in 12 months with a monthly interest rate of 2%, you will end up paying a total of 24% in interest, which exceeds the initial discount.
Plan for the Future
It is crucial to ask yourself if your debts are under control and if you could feel at ease in case you were to lose your job for five months, for example.
Remember that a person’s financial situation can change at any time, so it is essential to be prepared for it.
It is wise to avoid impulse purchases and focus on expenses that are truly necessary.
In short, it is not about avoiding credit or debt altogether, as they can be useful tools in your financial life.
What truly matters is understanding the economic environment around you and making informed financial decisions to prevent debt from becoming a negative burden in the future.
