Living Within Your Means And Avoiding The Debt Trap

by | Jan 5, 2023 | Personal Finance

One of the fastest ways to get into thousands, if not tens of thousands, of rands of credit card debt is to live above your means. Hopefully, you can see how easily you could get trapped into poor spending habits and credit card debt right off the bat.

Fortunately, it is easy to escape most of the infamous debt traps, once you know what to look out for and the other borrowing or spending options that perform better. When used smartly, credit cards and loans can be helpful, but it is also easy to play fast and loose with credit options and habits that could lead you into accruing large amounts of debt that will take you years, maybe decades, to repay. If you regularly use credit cards to make everyday purchases, or finance purchases rather than paying them upfront, you could end up drowning in mountain of debt.

Using a credit card or a loan to purchase a bigger house or new car may seem so simple, but it is leading you down a snazzy debt trap. If you know that you will not be able to make the loan payments, it may be better for you to sell your vehicle on your own and repay your debt. Most people who pay their minimum payments (without taking on any additional debt) do not repay the cards in 24 years.

Making just the minimum payments is more cost-effective in the short-term, but in the long-term, it could keep you stuck in a debt cycle, hurting your credit score. Most debt requires payments every month and having lots of debt obligations means that a large portion of your income goes to pay them off before you are free to spend on your other bills and expenses. This can be solved by taking out a single loan, such as a personal loan, to pay the other loans, thus consolidating all your debt obligations into a single loan.

One of the best rules of thumb to live by is that if you cannot afford something with cash, you cannot afford to use your credit card. If you are inclined to carry around a lot of money on credit cards and debit cards because you cannot resist a good deal, then do not carry those around, leave them home, and only bring the cash with you to pay for what you really need.

One of the more dangerous approaches to having a credit card is living under the illusion you can afford things you really do not have the money for. Consolidation can make life easier for a borrower and help them/her get out of debt. For instance, they could schedule careful budgeting from their husband as income, agree to not overextend themselves by buying a house and expensive furnishing, agree to spending more time with their children and spending less money on things for them, and, if possible, avoid taking out debts that would force to work outside of the home.

When couples share financial responsibilities by engaging in open communication, setting reasonable expectations and limits, cooperating on the budgeting process, and eliminating and avoiding debt, couples can break out of debt traps and enjoy greater peace of mind and harmony at home.

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