Debt is a constant threat for many people in life and is an unavoidable issue for many others. Debt can be incurred via many different means and situations and can affect both an individual’s finances as well as a business’.
Debt can be very difficult to deal with for many people, due to how repaying these debts is a consistent drain on a person’s resources, which when particularly serious can make day-to-day life hard. Furthermore, once in debt, it’s very difficult to get out of it and repay it quickly. That’s why one of the best ways to make debt less of a hassle in your life is to avoid it all together.
Of course, there are going to be certain types of debts that will be hard to stay away from in modern life, such as student loan debt and a mortgage for a house, however, reducing other types of debt can make these debts easier to manage. Here’s a detailed look into some of the more common types of debt and how to tackle them.
Personal Debt
A personal debt is one that effects a single individual or household, and can include many different types of debts, such as credit card debt, mortgages and other types of personal finance. Living with personal debt for most of your life can be really limiting, that’s why it’s important to learn a few tips and pieces of advice to ensure that you don’t end up in a bad monetary situation.
If you can’t afford it without a credit card, don’t buy it
One of the most common forms of debt an individual gets into is credit card debt. This happens because with a credit card people can spend more than they can actually afford, meaning that they struggle to pay off their credit card every month. It’s important to dispel the illusion that paying on a credit card is free money, as it always has to be paid back, usually with interest. A good rule to follow when using credit cards is to never pay for something with a credit card if you can’t afford to pay for it with cash.
Have a fallback emergency fund
It’s always important to save a proportion of your income, as these savings can be used to help out in emergencies so that you don’t have to borrow or incur any debt to get out of a bad situation. It’s a good idea to try and have an amount equal to at least six months of your monthly salary saved up, so that you can use it if you ever find yourself in a situation like losing your job.
Furthermore, these savings can be used to pay off parts of your debts in full so that your monthly repayments are cheaper, making any debts you do get more affordable.
Pay off your credit card balances in full
One of the easiest ways to build up a huge amount of debt that you can’t pay is to leave repayments till later through only paying the minimum. This is because, by not paying off your credit card balance in full straight away when you can afford it, you run the risk of ending up in a situation where you have to pay it later, and don’t have the funds.
So, if you’re making a purchase with a credit card to potentially earn rewards or to boost your credit score, make sure to pay your full credit card bill each month.
Cut-out the wants; focus on the needs
No matter how good you may think you are at cutting out unnecessary spending, there is always something that you can do to improve your personal budget. Stuff like eating out, buying a morning coffee every day or shopping online can eat away your budget more than you initially thought.
It’s vital to take care of the stuff you need to pay for first, such as bills, living costs and stuff like that. Create a budget so you can see how much you need to pay when compared to your income, and then whatever is left over can be used for debt payments. When doing this, don’t forget to put some money away in your savings to help protect you against a bad situation in the future.
Limit the number of cards you have
There’s truly little need for an individual to have more than a couple of credit cards. This is because the more cards you have the more payments you’re going to have to make and manage and the more interest you’re going to have to contest with. The more you use these various cards, the more opportunity there is for you to lose track and fail to keep up with your spending, making unmanageable debt far more likely to happen. Using a single card is far easier to manage and organize.
Be sensible when you receive a pay increase
If you’re lucky enough to progress in your career and get a pay increase, it’s important to not get too excited about this injection of extra cash and spend it all. Instead, a far more sensible thing to do that will help you keep debt away is to continue to live on your previous budget for at least six months, putting the remainder away in your savings. This will help prepare you for potentially tricky financial situations and will also allow you to spend these saved up finances on special things.
Collect coupons to save cash
Everyone needs to spend money on groceries, they’re an essential expense, however, it’s a good idea to try do everything you can to limit this expense, as this can help your finances. The first tip is to shop at cheaper stores and buy more own-brand products instead of the more expensive brands. One of the best things you can do to reduce the cost of a weekly shop is to find coupons and discount codes, which can help knock off a lot of money from your grocery bill.
Business Debt
Business debt is an entirely different kind of debt when compared to personal debt, mainly because it affects an entire organization and can occur in various different ways. The funny thing about business debt is that most business have it, and it’s far less taboo to operate a business that has debt. The issue here is that you need to manage it properly so that it does not become an issue and burden the business.
To help avoid your business taking on too much debt, which could potentially threaten the existence of the business, here are a few things a business can do.
Make more money
It may sound like an obvious solution, but the best way to help overcome and avoid business debt is to simply make more money. Of course, this is easier said than done, however, there are some ways that a business can try to do this.
The best strategy is to try to diversify your products and services so that they appeal to a wider audience. Your business can also offer incentives and loyalty schemes to encourage continuing support from customers.
You can also shift stock by running sales campaigns during the year, and it’s also a good idea to find a supplier that will accept returned unsold goods.
Sell unused assets
A stockpile of assets within a business costs money to maintain and look after. There is no point for a business that has the prospect of debt looming to keep hold of these unused business assets. Instead, a good option is to sell these items and then put the money towards debt repayments or towards strategies that will help to grow your business. When doing this, it’s vital that you only sell unsecured assets, as selling secured ones can be considered fraud and get both the business and its owners into serious legal trouble.
Change your payment terms
If your business needs to find ways to save money to prevent the prospect of getting into debt, then a good idea is to go over your existing contracts and invoice terms. Some things you can do is to try and negotiate discounts for bulk-buying at your regular suppliers. You should also try to negotiate early payment plans with your customers so that you’re not waiting around for payments, and you should also chase outstanding payments as soon as they fall due.
Avoid Paying Debt Lawsuits
A debt lawsuit is when a creditor sues an individual or a company so that they are legally forced to pay the money. Lawsuits are really horrible situations to get involved with and are difficult to navigate. There are some protections for debt lawsuits that you can implement via a debt lawsuit lawyer, as well as a few things you can do to increase your chances of winning and avoiding the need to pay additional charges. Here are a few things you can do, alongside getting in touch with a debt lawyer.
Respond to the lawsuit
One of the biggest mistakes that a person being charged with a lawsuit does is ignore it. It’s vital that even if you feel that the claim is unjust, you must respond to the notice, because if you don’t do this then the collection agency will get a default judgment against you, which opens up some new avenues for them to collect money from you. This includes wage garnishment as well as the ability to take money from your bank account, not to mention the ability to add fees that can double or even triple the initial cost of the debt.
Responding to the lawsuit allows you to contest it and dispute it, which isn’t the case if it’s ignored. Some tips for responding include never admitting liability for the debt and forcing the creditor to prove that the debt is your responsibility.
Challenge the Company’s Legal Right to Sue
A good way to discourage creditors from filing a lawsuit is to challenge their actual right to do so. This is because, by the time a debt has reached the point where a lawsuit is needed, it has often been sold – potentially more than once. This means that if you challenge their right to sue they may not actually have the documentation they need, meaning that a judge can dismiss the debt lawsuit for this reason.
