Debt from the beginning to its end.

Understanding the purpose of debt, its management, and resolution

Updated: 7-10 April 2020
John Simon

Sometimes it is very difficult to live a decent life when you have limited cash or source of income and
people would normally resort to credit cards, lines of credit, or loan; and getting out of these consumer
credit vehicles faster is certainly hard than anyone can ever imagine. But most of them are easily
persuaded to avail one because of lenders or vendors marketing abilities. Some would provide promos
by offering less or no interest at all up to a certain period of time and some would give you installment
as an option. Let this article explain you about people who resort to debt as a vehicle to gain something,
how can people manage their own debt condition and eliminating themselves on this zone.

Consumer debt  (Investopedia 2020) consists of personal  debts  that are owed as a result of purchasing
goods that are used for individual or  household  consumption.  Credit card debt, student loans, auto
loans,  mortgages, and payday loans are all examples of  consumer debt.

As consumer debt has been defined, let’s subsequently discuss the reasons why people are resorting to
this. One way is to understand the use of these liabilities to a person holding them and their purpose
accordingly.

A person walking to the debt journey must know what he is dealing into…

Coming into debt setting, it is very significant to know the REAL purpose on why people are using debt
function as a way to gain something. Not only one should know the reason of using debt as a vehicle,
however, people has to understand the effects of this in the long run. They must understand its
implication on their daily cash flow, in other words – people should be responsible enough to managing
their finance while they are having liability in the picture. On the other hand, utilizing debt function in a
corporate finance setting is a business strategy for certain purpose of acquiring new assets and
maintaining liquidity.

Acquiring or purchasing a new phone, car, house, or any material that has intrinsic value for personal or
household consumption value belong to this type of debt. Whether or not this is for swap or upgrade as
long as there is an exchange of transaction using money not on hand and being provided by a third party
is considered as consumer debt. In the mind of the government’s fiscal policy and spending or private
financial institution, these are called Consumer Debts but in personal finance these are called Consumer
Credits.

The inherent responsibility…

When people resort to debt when gaining something – there is an inherent responsibility that comes
with it. People have to be responsible on their payment – in other words they should know how much
they owe in total, monthly amortization, schedule of payments, and the corresponding charges and
penalties when their payments have failed. What is more important from a lender point of view is the
debtor should be able to continually pay what he/she has owed, without fail. People might incur
financial charges or even layers of penalties when payment is overlooked. So much so, they have to
understand the over-all impact on their financial situation due to insufficient fund or late payment. Thus,
by having a consumer debt with no goal and purpose is pointless as mere owning one is no easy task as
bunch of discipline and accountability comes with it. Moreover, people must completely assess first
their economical behavior and financial capacity when engaging themselves into debt.

The next question is how anyone can free themselves up from Debt obligation…

There are ways in coming out of these financial obligations. Freeing yourselves up quickly requires
dedication and hard personal disciplines. So take action and have a control on your situation. Here are
some few steps that you can apply.

1. Knowing your schedule of payments and pay more than the minimum amount.
a. This is to ensure that there will be no late payments which will incur financial charges
and penalties. By paying more than the required minimum amount, it helps you get out
from debt quickly as this subsequently lessens the period of time in its expected to be
paid off.

2. Increasing your source of income by picking up some side “raket”

a. Increasing your sources of income through your skills, talents, and other abilities that
can be monetized can help you get away from debt faster. This creates another stream
of cash apart from your normal source of income. Think of your passion or what you do
love the most and think of ways on how this passion can be monetized. It does not need
to be outstanding as long as you put your dedication onto it, you shall be able to identify
one. Such examples of rakets are Buy and Sell of products, provide paid services such as
massage, training, and online service tutorials.

3. Monitor the spending by eradicating unnecessary expenditure.

a. Focus only onto the basic necessities and allow yourselves to create a budget plan. Not
only this will help you get you out of debt from
b. Save yourself from vices such as exorbitant drinking and chain-smoking.

4. Always assess your financial situation

a. Assessing yourself through your financial situation means assessing what should be
doing with your money. Meaning you have to carefully budget your money. This is
through monitoring your money in and money out periodically. Calculate your money
and adjust yourself to what is only needed and stick within your allowed money to
spend. Always remind yourself with the personal finance income equation where
expense comes last.
Planning your budget is the key.

5. Application of Snowball or Avalanche method

a. Snowball method is paying your debts from smallest balance to largest balance
regardless of interest rate while avalanche method is paying your debts from highest
interest rate to lowest interest rate regardless of balance or a combination of two..

What to watch out for when getting into debt obligations….

Effects of Getting out of Debt quickly.

You can now use your cash/or money into savings and investments. You may be able to save money and
put some into emergency fund during rainy days. You may allow yourself to put your money into
insurance policies such as health and life insurance to cover risks health impairment and death.
Furthermore, you can allow yourself into increasing the value of money into stock and real estate
investments.

Incoming Articles

Unexpected Expense and Liabilities and how can cover them up.