A butcher put up a sign in his window that read: “This business will be forced to close as a result of bad debt. The list of names and the total amount owed by our customers will shortly be displayed.” Money rolled in instantly. The shop stayed open, and within a short period, the business started flourishing. Despite the fact that some financial experts are claiming that the economic slowdown has ended, money is still difficult to get these days, whether people accept it or not. Though money is coming in slowly, expenses keep increasing day in day out.
If the money coming in is not sufficient to cover the bills and other living expenses, you may consider borrowing and end up in debt. There are real debts as well as bad debts. Obtaining online installment loans with instant approval are nice because they are fast, secure, and convenient. On the contrary, charging things with a credit card can be dangerous simply because of the fluctuating interest and hidden costs. The point is there are numerous ways by which people get into debt, especially during the hard times. To avoid financial ruin and bankruptcy, everyone should look at the two popular sources of debt traps.
First, spending tomorrow’s earnings today. Even though the evidence of an economic downturn is quite obvious, people can’t leave behind their old ways and keep on feeding their financial disorder. These individuals are suffering from an addiction of buying or purchasing items they do not need. Most of them are aware that something is awkward with their desire to shop irresponsibly, but they feel they can’t prevent themselves from doing that.
Unfortunately, getting oneself into bad debts these days is faster with the use of available technology as well as the modern way of spending money via credit card transactions.
Second, people slip into debt traps as a result of an unwillingness to change their lifestyle when situations have changed. Losing a permanent job or even temporary unemployment can be very tough for anyone to deal with. When income is less than the expenses, experiencing a negative cash flow becomes inevitable. If people continue spending the way they used to, eventually they will be living in debt.
Here Are Tips on How to Avoid Financial Traps
Start your retirement saving plans as early as possible
For most young people, the budget can be tight that it might seem there is no room for extras. However, when it comes to saving for your future, leaving time for your money to multiply is just as crucial as the money itself. What is more is that many companies will complement your retirement contribution – that is free money! So get started with your retirement savings now, even if it is just a little amount to start with.
Do not skip out on health insurance
Generally speaking, health insurance is not exciting. However, if you end up in the medical center without health insurance, that might be an indication of early financial ruin. If you are not covered in college or by your employer, don’t hesitate to purchase a health plan by yourself. The Affordable Care Act permits you to remain on your parents’ insurance until you are 26 and some insurance providers also offer programs intended for cash-strapped youths.
Live below your earnings
If you attended college, you should have been used to this lifestyle already. Why not extend the prudence for a few more years? Living a frugal life will help you to save more money for the future. Consider driving that jalopy for a few more years and avoid new monthly expenses for services you do not need.
Save early, save regularly
When you are barely scraping by, it might be tough to give thought to saving money. However, an emergency savings fund can assist you to avoid financial difficulty in case you lose your job, are faced with a significant unexpected expense or encounter a major car repair. Bear in mind that this is a fund entirely different from your retirement savings. This is especially for emergency situations. Nobody expects you to set aside thousands of dollars when you’re living on Ramen noodles, nevertheless even a little contribution can add up over time.
Qualifying for credit does not mean you must capitalize on every offer
You do not need five credit cards or 10 retail store credit cards. It might be tempting to make the most of those “10% off your purchase today” deals that retail stores offer you, but those credit cards usually carry high-interest rates and charges. Now is the best time to build your credit, so you won’t need to apply for instant loans for bad credit when you’re strapped for extra cash. Focus on one card and ensure you pay your bill promptly and in full every month.
Transfer of credit card balance usually costs more than they are worth
On several occasions, you might be tempted by 0% balance transfer offers, do not make the mistake of falling for such temptations because there are some outrageous fees attached. Most times, balance transfers come with charges that cost a lot more than the savings you would get in return.
Avoid falling into debt
At the early stage of life, you should be planning on building your credit, not plunging it. Only charge products on your credit card when you can pay back with ease. Avoid paying the minimum – Getting used to this habit, will put you in debt for an extended period. It is also imperative that you only borrow the exact amount you need. Just because you qualify for a substantial loan – whether it is a student loan, home loan or auto loan – does not mean you should obtain the full amount. Take into account what you need to get and only borrow that exact amount.
Dealing with too much debt is one of the most common money mistakes people make. The privilege to charge whatever you desire at any time is a tempting proposition. However, when you finally realize the error you have made, you may spend a whole lot years paying off what you owe. Never let this happen to you.
By staying away from many of these traps that young people commonly encounter, you will set yourself up for significantly greater financial success.