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When people find themselves in mountains of debt, the usual reaction is surprise. Most people never imagine getting themselves to the point where they can no longer make their payments. Often, it creeps up on them.
In this post, we look at the two main reasons people get into debt and some of the solutions for getting out of it. Read on to learn more.
Why People Get Into Debt
There are a couple of broad reasons why people get into debt.
Unexpected Expenses
One common reason is unexpected expenses. Life sometimes delivers financial blows (that seem to come from nowhere), wiping people out financially.
For example, job loss is a significant driver of unexpected financial problems. People who lose their source of income can find themselves turning to lenders, just to make ends meet.
Medical bills are another big one. Nobody expects to get sick until they do, and then the costs can be enormous.
Living Beyond One’s Means
The other reason people get into debt is by living beyond their means. Many people believe their income allows them to enjoy a certain lifestyle, even when it doesn’t.
Using debt to fund a lifestyle is generally a bad idea. With a financial plan for how the borrowing is going to be productive, borrowed money often becomes sustainable.
How To Get Out Of Debt
Fortunately, there are several ways to get out of debt. Many of these require discipline and consistency.
Cut Back On Unnecessary Spending
The most obvious tactic is to cut down on unnecessary spending (or eliminate it if your debt situation is serious). Getting rid of anything that could prevent you from paying back the original loan is essential.
Bundle Your Repayments
You can also bundle repayments and get a lower interest rate, as services like My Debt Hero recommend. Instead of paying off debt to varying lenders, you can lower your interest rate overall and pay less each month in repayments.
Track What You Spend
Another tactic is to track what you spend. Being careful not to go crazy on monthly outgoings can help prevent you from getting into financial difficulty.
Sometimes, you’re just not sure where all your money is going. It’s not always clear why it is disappearing every month. Once you know more about your spending habits, you can figure out where you need to be vigilant.
Some banking apps are helpful because they tell you where your money is going. They divide spending into segments (such as entertainment, household items, grocery shopping, etc.)
Earn More
Another option is to simply try to earn more. While it’s not the most palatable approach to paying down debts (because of the sheer level of effort it involves), it can be effective.
To make it easier, tell yourself that working extra hours is just temporary. See it as a short-term solution to get you through the worst of it. Over a few months, you can start making extra payments to bring down your debt-related bills and get the freedom you want.
