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Learn How To Avoid Excess Debt

By Expert Author: Artham Vidya

Prevention, they say, is better than a cure. We should all be far better off, if we took this axiom to heart and applied it to all facets of our lives, particularly with respect to our finances.

Getting into debt is the easiest thing in the world – but getting out of it becomes a difficult task. Why get into debt at all?

Debt is, in some ways, unavoidable, but we can prevent getting into too much debt. Here are some ways to avoid excessive debt:

Set a cap on your liabilities
•If your income is Rs 100, you cannot take on a debt liability of more than that amount. Your debt should be in line with what you can afford to repay. If your total expenses some to Rs 60 and your disposable income is Rs 40, your debt repayment ability will be lower than Rs 40, because you will also have set aside some money for emergency expenses.
• How much of your monthly income do you want to go into repaying your debt? That is a key factor is determining how much debt you can take or are willing to take. Decide that first, before you apply for a loan.

Scout around for the best debt options

When you take on a loan, check to see what the interest rate is, you will be paying and whether that is the lowest in the market. Do some preliminary research and get the best terms and conditions for your loan.

Interest rates go up and down and financial institutions keep adjusting their rates over time. Keep monitoring the rates and ensure that you are still getting the lowest rates in the market on your loans.

Don’t be in a hurry to take a loan

Banks and financial institutions may tempt you with loan options but if there is no need, avoid taking a loan as much as possible. Do not give in to the temptation of agreeing to these offers. Once you take on the loan, you will be caught in the trap of servicing it, whether you use the loan amount or not.

Set up a direct debit system for your routine bills and expenses

Banks, financial institutions in association with many utility companies offer a direct debit system for paying your bills automatically from your account. If you are in the habit of delaying making your payments it may help to set up this system so that your expenses are paid. What you don’t see, you will not miss.

Lastly, exercise your common sense when taking on debt.

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