Everything You Need to Know About Debt

Most likely, at some point in your life, you have had to borrow money from a friend, a relative, or a financial institution. This act is what is known as a debt. You may have a lot of debt right now, but don't worry; today we will show you some details about debts and how you can get rid of them.

1.What is a debt?

Debt is the responsibility that a person (whether physical or legal) contracts to comply with an obligated payment commitment. It is the sum of money that has to be paid to a company or some person to receive a consideration.

2.Why are there debts?

Debts are of great importance to the economy as they help keep it running at a faster pace. This "acceleration" is because debt allows you to instantly get something that would probably take you a long time to get while you raise the money. If you think about it, very few people would be able to buy a house or even a washing machine if the concept of debt did not exist.

Contracting a debt is not always bad and on many occasions it is even inevitable. For example, we could ask for a loan to buy a car that we need to go to work, or use a credit card to buy a new refrigerator. As long as you pay on time, these debts will not cause any problems. On the contrary, if the debts are paid according to the established date, they can help improve your credit history.

However, debts can become a serious problem when what is owed is a large amount of money that is beyond our budget. Having a lot of debt can turn out to be a serious problem; Because if you do not have funds and a suitable budget, you will not be able to pay them. This can result in exponentially more debt, and in the worst case it can even get you into legal trouble.

3.Interest rate

One of the characteristics of debts is that they offer the opportunity to pay for products or services in installments adjusted to an interest rate . The interest rate is an extra percentage that you must pay to the person who provided you with the loan; being the lender the one who decides how much it will be. It can be said that the interest rate is the price you have to pay for using the money that has been lent to you.

It is good to keep in mind that the interest rate is a balance of the risk assumed by the provider of, for example, inflation (which is the general increase in the costs of a country), and the lack of total or partial payment of the loan.

The interest rate percentage is determined taking into account various circumstances. In the case of financial institutions, the entity that determines the percentage of these interest rates is the Central Bank of each country.

4.How to Pay Your Debts?

If you're up to your neck in debt, don't be discouraged. Many people have managed to get rid of their debts. Of course, it is not something that is achieved overnight, as if it were a magic recipe. You have to make a conscious effort to be consistent and patient in order to see positive results.

So today we have prepared some tips and suggestions for you so that you can get rid of your debts once and for all.

Acknowledge that you have a problem

First of all, and it may sound very logical to you, the first thing you have to do if you find yourself in a position like this is to recognize that you have debts and start attacking them. And yes, this is the most logical and sensible thing to do, but even so, many people prefer to continue with their lives ignoring their debt problems, as if nothing were happening; when in reality they are financially serious.

How much do you owe?

To get a general idea of ​​your situation, it's good to calculate exactly how much money you owe. From here you can put together a plan or strategy to start paying your debtors.

Take the time necessary to analyze your current financial situation.

Your fixed expenses

Part of the income is dedicated to pay for the basic things that are necessary to live (such as food, clothing, or other expenses such as taxes, etc.). So, make a list of all the expenses you make on a monthly basis; and then, go discarding those that are of lesser importance. In this way you will have more budget to settle your debts, at the same time that you continue paying what is really important.

make a plan

To achieve any goal or objective that you set out to achieve, it is vitally important that you plan. This way you will know exactly what you are going to do and how you are going to do it, resulting in you being more focused on your goal. If you don't have a plan, this whole process will be more difficult and slow.

Avoid using credit cards

Credit cards are great financial tools if used correctly. On the other hand, if you find yourself in a serious financial situation, it is better not to use them so much. You may be tempted to overspend if you have credit cards, so don't carry it with you everywhere. In this way you will save expenses and you will be avoiding generating more debts.

Do not add more debts to the list

It would not make sense that, while you strive to get out of your debts, you accumulate others. Since you have defined the amount of money you owe, it is important that you do not increase this figure by loading yourself with more debts.

Start building an emergency fund

Try to put a portion of the money you earn into an emergency fund. This can be very helpful in case something unforeseen arises; such as an emergency, a traffic accident, or other unexpected factors.

This is important since, when one of these situations arises, if you do not have an emergency fund, you can accumulate more debts. So try to add a little money to that part of the budget every month.

attack your debts

Once you have your emergency fund and have reduced those things that can take more money from you, it is time to face and attack debts; For that we recommend you follow this series of steps:
  • Organize your debts from lowest to highest cost.
  • Establish a sum of money to pay your debts month after month.
  • Pay a little more than the quota of each of the debts, in order to get out of it faster, it is important that in order for the amount to decrease the debt, you make sure that the payment goes directly as a capital contribution.
  • Any extra you get, use it to continue paying your debts, so you will avoid spending it on unnecessary things.
  • When you have gotten out of the smallest debt, move on to the next one and put more money into the one with the least balance.
As you could see, getting out of your debts is possible, it's a matter of being disciplined and patient. If you follow the suggestions that we show today, you will see that in a short time you will have gotten rid of all your debts.

I hope that the content of this article will help you in some way.


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