It is very common for people to buy things like a house or car and take a loan to repay. Education loans are also the norm these days because of the rise of higher education costs. What we don’t realize is the debt trap that we are falling into. Many of us don’t even think twice about what we already owe, before we take another loan. In the simplest way debt can be explained as something which happens when you spend more than you earn. Actually it is not that simple. Unexpected things and events happen, which can leave you facing big debts that may take years to pay off. Let’s try and understand some of the main causes of debt. These may help us in making better financial decisions.
Sudden loss of income is probably the scariest of reason to fall into debt trap. It is like a two-barreled gun. Firstly, you have no income and on top of that you have to repay your debt, which almost seems impossible. Emergency funds are meant exactly for such a scenario. Living as frugally as possible is really necessary. Keep trying for a job and any opportunity you get, don’t let it go. Understand the difference between wants and needs.
Education loans are sometimes necessary and can’t be avoided. Try to find good colleges which are not very expensive. Teach your children about the value of money and encourage them to take up a job to help with the loans. Start saving, right from the time the children are born and you may a good education fund ready by the time they go to college.
Medical costs have been a major cause of people falling in the debt trap and even going bankrupt. Even a few days of hospitalization and treatment can quickly add up to big bills. Insurance is necessary and will definitely help you to some extent, but apart from that saving money for medical purpose is really important. Try and take care of your health and going for regular check-ups can also be good.
Be open to new and innovative sources of income to add to your emergency funds. Trading online can be a good option. There are automated platforms which allow you to trade online. You can learn more about this if you see it here. There are a few risks but not too many and without risks, there are no rewards. So be careful with your money. Understand the need to stay out of the debt trap. Maintain emergency funds and keep topping them whenever you have any extra money.