In the course of our lives many of us are often forced to take our some form of loan in order to fund our daily needs. However, this can lead to a pile up of debt that creeps up on you before you even realise it. Here are four types of debt that you should avoid and ways to prevent taking out a loan in the first place.
Credit Card Debt
With credit cards promising a luxury and care free lifestyle at the tap of your fingers – it’s no surprise that many people have spiralled into a credit card debt cycle. When used wisely and paid off within correct periods, credit cards seem nothing short of convenient. However, the nasty high-interest rates that occur when you forget or extend your re-payments can often leave you in a debt spiral. If you are thinking about getting a credit card it’s important to consider your income, buying behaviour and the card’s interest rate. This will enable you to see if you can afford to pay off your credit card debt. Also, remember to only use your credit card in the case of an emergency as opposed to a source of indulgence.
Student Loan Debt
Higher education is an important rite of passage to many students who wish to qualify for higher-paying jobs and roles. However, the increasing cost of college and university degrees can lead many students to rely on loans for the education. This has led to an alarming amount of young adults that are swimming in debt well before they have earned their degree or even applied for a job. In some cases those unable to find a job in the highly competitive employment market find themselves completely unable to manage or pay off their student loans. To avoid/reduce student loans, think about part-time or casual job options.
Medical debt is perhaps one of the hardest kinds to avoid. Due to unpredictable nature of medical emergencies and injuries, medical debts are often taken almost immediately in order to pursue treatment. The first step to avoid medical debt is to seek a comprehensive medical insurance that you can afford. In the case of illness or injury within the family, this will ensure that some costs are covered. However, it is important to note that in some cases medical insurance will not cover all costs – leaving you to foot the rest of the bill. Thus, it is always a good practise to save some money “for a rainy day” every time you get paid.
Car Loan Debt
Cars are another very expensive commodity that many people turn to loans for. When buying a car, many individuals misleadingly think of it as one cost. However it is very important to think of other costs involved with buying a car. For example, weekly and monthly costs such as petrol, tolls, servicing, registration, roadside assistance and car insurance. These hidden costs also add up and eventually factor into your ability to pay off your potential loan. Thus, it’s important that you consider all these costs when purchasing a car. After taking all the costs into consideration, try to save up the largest down payment that you can afford. A large down payment will reduce the total amount you need to borrow, thus reducing your high interest re-payments overtime.
Large loans that you cannot manage and repay on a monthly basis with your current income can lead to larger debt and poor credit ratings. This often leaves people in a credit card spiral as they need to borrow more and more. If you are in this situation, talk to Debt Fix now about arranging payment deferrals or freezing repayments.