Only a small percentage of the world’s working population are debt free. For many, the only reason they’re working is to pay off debt. Even rural areas are seeing an alarming increase in personal debt among its people. What is the reason for this increase in debt and what can be done about it?
Not Enough Risk Cover
Life cover is not the only type of coverage you should consider the moment you start earning a salary. You would also need to consider insurance for your car and household content. Then, of course, there’s health cover. The more you go into detail with a financial adviser, the more options they will present to you; for instance, retrenchment cover, disability and more. When a risk incident happens and you’re not covered, you will still be liable for the costs, which could result in a judgment. This will drop your credit score, making it virtually impossible to get credit. Many people apply for credit the moment they see things are spiraling out of control, but few are able to raise enough to cover the mounting risk incident bills. Before they know it, they’re in a situation wherein they are unable to pay the risk bills and the mountain of debt they got themselves into. The remedy here is to ensure that you are sufficiently covered. Even starting with the basic plan is better than nothing.
Using The Wrong Finance Method
Stepping into a bank and getting a credit card with a $50 000 limit to purchase a vehicle is reckless and expensive, unless you are able to settle the account within a month or two or if there is no credit interest charged on the account. The right way is to apply for installment finance, unless you have 0% interest on another product.
It also dangerous to purchase everyday goods on your credit card and then paying back the outstanding balance in installments. Not only does this make you reliant on your credit card, but it also means you will struggle to pay it off.
Mustering up the courage to go to a bank for a loan does not sit well with everyone. Some prefer approaching in-house finance and getting the likes of payday loans and microloans. The unfortunate thing is that this creates a cycle of perpetual lending as these limits are usually low, but payable in one installment. Approaching a bank and rather applying for finance through them means that you are able to repay these installments over a few months. Shop around and look for favorable interest as opposed to just going with the first offer.
Getting a Loan Without Knowing the Terms or Interest Rate
These are common in rural communities, especially where the lender is their boss. The terms are decided monthly, and when the owner is unhappy about something, he pushes up the rate. The worker is then unable to work for anyone else as they would need to pay off their debt before they are released. These workers are often under the impression that they owe a certain amount of money, but when they inquire, the figure far outweighs any future income they may receive.
Loan sharks work in a similar manner, although stories of violence are not uncommon where they are concerned. The interest is exorbitant and failure to pay has dire consequences.
Getting into debt is a serious decision to make, with many implications if not handled correctly. Approaching reputable institutions is always a better option, as you know they need to comply with certain regulations. This offers protection to both the lender and borrower.
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