Worldwide personal debt at an all-time high
Photo by Emil Kalibradov on Unsplash
Households around the world are struggling due to an increased cost of living and debt. Outstanding debts add an additional drain to financial resources, which can result in a debt spiral.
Spending is at an all time high, while income remains stagnant for many households. This pattern is unsustainable on a long-term basis, which is why households and businesses alike are concerned about their financial future and the potential of another recession.
What can households do to tackle personal debt and decrease expenses to better weather the financial situation?
Common debts
One of the most common forms of debt is credit card debt. It is incredibly easy to “buy now and pay later”, resulting in impulse buys that cost more than you may realize. Over time, credit card debt builds up and can have a high interest rate.
Mortgage debt is also common, although it usually has a more stable interest rate. Other large personal loans and specialized loans like student debt can pile onto your monthly expenses. Always look for a loan provider that offers lower interest rates where possible.
Another form of debt is a payday loan, which is a very quick but high interest rate debt. A payday loan is typically designed to tide someone over for a week or so, but it’s easy to get caught in a spiral of needing more loans due to added expenses.
Dangers of debt
One common way to deal with debt is to pay the minimum amount each month. This seems like spending less money, but is widely understood to be the most expensive method to pay off debt. Interest rates continue to pile up and multiple debts can result in large charges over time.
Instead, households fare better when they deal with debt as quickly as possible. The sooner debts are paid off, the less expensive they become. This also reduces the regular daily expenses, allowing money to be put to better use.
If debt is ignored and left to build up, it can reach a point where it is too high to repay.
Filing for bankruptcy
If a household cannot afford to pay outstanding debts, one option is to file for bankruptcy. When you file bankruptcy, the slate is wiped clean. Debts and interest rates are eliminated, allowing your household to start fresh.
However, filing for bankruptcy does impact your credit score, and can even affect employment. Also, your non-essential belongings and any investments may be seized and sold to repay as many creditors as possible.
If this is the best solution for your debt issues, do some research to learn how it may affect your family and how long does it take to file bankruptcy?
Dealing with debt
However, the best option for most households is to deal with debt and pay it off. This is especially important for high-interest debts like credit cards and payday loans.
Consolidating loans allow you to pay off multiple debts and transfer them to one, lower-interest debt that is simpler to pay. Or you can try the snowball method, where you pay off smaller loans first and take each debt at a time.
