One lesson we learn early from our culture is that debt is normal. In many circumstances, upon death one of the few things people unfortunately leave behind for the immediate next of kin is debt. Precious few creditors will forgive debt when we leave this world. With rising costs everywhere, we all suffer a bit when relying heavily on loans to keep us financially afloat. And floating on debt is like sitting in a life raft with a leak…
Typically there is a fairly strong negative association with being in serious debt, but shame or social discomfort is unnecessary. Certainly if purchases were made for urgent needs or even an emergency, debt may be your only option.
Even the savviest of financial counselors can wind up in debt for one reason or another. You would think that someone who is good at taking care of his financial obligations in general would also be good at debt management. This is not necessarily so. On the surface, it is simple. To be proficient with home finances requires knowing how much money is coming into the home, the cost of monthly bills, and how much is needed to pay them off. But the tie of debt has a certain allure that can ensnare even the most financially astute!
Effective debt management relies heavily on knowing one’s total debt obligations and the amount needed in earnings to adequately address them. There are simply more people who practice poor debt management than good, and they continue borrowing without sufficient financial resources to repay.
When you begin the process of addressing and resolving your debts, you will first need to take inventory of those debts. All of them. Write down the total amount of the debt, the individual amounts, and the monthly payments. Divide them into two groups; one for essential or urgent bills, and the other for those that can be at least briefly delayed if necessary. Pay the essential bills first and the lesser priorities afterward if money runs short.
Those without an income source should avoid borrowing altogether simply because debts accumulate and create an endless cycle of debt crises.
It is all-too-easy to meander into debt, but much more difficult to escape its claws. It is much better to err on the side of caution when weighing the prospect of borrowing from anyone. Resist the temptation to use credit unless you know you can afford to pay it off in a short amount of time.
While debt is a quite natural state of financial life, all should learn basic money management to avoid it. Learning ahead of time about interest rates and different types of loans will help one to better face the facts of debt.
October 11th, 2007
Budget Your Income and Expenses
Being financially prudent throughout one’s life has huge advantages that touch almost every facet of our being. One critical means of establishing and maintaining financial health is through the use of a budget. Rather than serving as a restraint on the quality of life, a budget actually can help to ensure you are able to financially maximize your ability to live life to the fullest. The main function of a budget, really, is simply to track and balance your cash inflows and outflows. Certainly you want more coming in than leaving. But if that is in fact not the case, the result will be debt. If you don’t feel you have good budgeting skills or simple mathematical competency today, you can learn fairly easily. Working with a budget is definitely worth the relatively small effort.
Create a Financial Plan
Develop a good financial plan. This exercise not only includes the budget referenced above, but also a broader set of objectives on how you will or hope to - make clear-minded decisions on where to commit your limited resources and to invest any surplus beyond required expenses. Certainly life’s unpleasant surprises at times necessitate a person or family to pay or borrow for unanticipated expenses. However wherever possible, avoid making debt part of your financial routine. Plan for the future and how you will pay for ongoing needs without incurring debt.
Borrowers and the Law
All countries have laws that protect their debtors from creditors. The laws in the US are extremely strong. But creditors can still find creative means of collecting what they are due. It is best, though, when a borrower and creditor are able to avoid an adversarial relationship and talk openly about the person’s financial struggles to develop a creative alternative for repaying a loan. Such an approach is much more efficient than attempting to hide from a creditor.
Death and Debt
When a person dies, any outstanding debt will still be extracted from the person’s estate. Taxes are paid to the government first, and then debts to the various creditors. Anything remaining in the estate is then distributed according to the dictates of the deceased person’s will. So if at all possible, it is best to repay debts during one’s lifetime rather than leaving those financial obligations to the post-death estate distribution process and potentially depriving your family members from a needed inheritance.
Secured vs Unsecured Loans
Loans may be secured or unsecured. Secured loans have the backing of collateral or some security, such as a home. Unsecured loans, on the other hand, dont have that same backing and consequently incur a higher rate of interest because the risk is much greater to the creditor.
The best option, if indeed it is an option, is to avoid loans altogether!
October 11th, 2007
