One of the biggest drawbacks of modern life and society is debt. It seems like wherever you look, everyone is tied down to debt in one way or another, especially in urban areas. The average American debt is at an all-time high, thanks to the pandemic which has seen a 42 percent increase in credit card debt. Student loans and mortgages reign supreme at the top of the loan list.
The economic depression caused by the COVID-19 pandemic as well as the increasing cost of basic necessities over the last couple of decades has made it extremely difficult, if not impossible, to get out of debt one way or another. If you want to understand how debt works in the modern age and effective strategies to get out of it, keep reading.
The Impact of Debt
For most people with an average or below-average income, paying for the more expensive necessities as well as luxuries in life can be quite difficult. For example, while going for higher studies to get a well-paying job is a necessity, but getting the degree itself is quite expensive, making it quite the dilemma for most. This is where loans come into play.
Taking loans from banks, financial institutions as wells as various authorized and unauthorized individuals is the most common way for people to pay for things they need now in return to agreeing to pay back an interest sum on top of the original loan to the creditor who provided the loan. Loans often take a long time to pay back, resulting in debtors paying more interest on the loan amount.
There are two main reasons for this- firstly, the amount of loan most people take often is usually ten times more than their current income, even more, when going for student loans and mortgages. Repaying that amount takes a significantly long amount of time even if paid partially on a monthly basis. The interest that kicks in meanwhile significantly increases the amount to be paid.
Secondly, most banks and financial institutions charge an exorbitant amount of interest rate knowing full well that it will take their clients years to pay back the loans. The interest rate conditions are set in such a way that unless you have a good income, the longer you stretch the loan repayment, the more you end up paying in interest, sometimes going far as matching the original loan amount
Strategies to Get Out of Debt
Fortunately, getting out of debt isn’t too difficult if you are financially savvy and know how to cut corners without compromising your basic standard of living. Here are some of the most common and effective strategies to get out of debt:
Paying Bills on Time
Interest rates aren’t the only thing that’s putting you into debt every month- not paying your bills on time can also do the same as well. Not paying your bills on time can result in financial penalties which is money you can easily save by being a bit mindful.
Go Cash Only
Another great way to save money is going cash-only like the boomer generation. There is a good reason people who don’t use credit cards or do online shopping end up saving a lot of money- they don’t have to pay anything in extra charges, not even transactional fees which are common in online and card purchases. Despite being quite archaic, there’s no denying the effectiveness of this method.
Paying More in Debt Settlement
Paying more than the bare minimum on your debt repayments is also another great way to save money in the long run on debts. Paying off your debts quicker will take a hit on your lifestyle for a bit, but considering how much you’ll be paying on interest payments down the line, it’s the smartest choice.
Another great way to avoid debt is to go for BNPL (buy now pay later) purchases which provide you the option to pay for a product in installments. These offer programs have a significantly larger period of time for loan repayment before the interest rate kicks in. You can find these payment options mostly when buying electronic products and furniture.
Get Your Financial Priorities Straight
When it comes to eliminating debt, consistency in sound financial habits is the key to success. Though taking a loan might be necessary to do certain things in life, repaying it as soon as possible should be your top priority. If you have to sacrifice a few comforts and luxuries along the way, it’s worth the inconvenience.