If you’re wondering whether you have plenty of debt, there’s a high possibility that you do. Debt is one of the biggest wealth killers, especially since a big part of your income goes into clearing minimum dues every month. Having multiple debts can also affect your credit score, which will make it difficult to secure a good interest while applying for a new instant loan. But how do you understand if you’re overextending your finances? Here are some signs.
You Don’t have A Full Account of Your Debt Situation
Avoiding debt won’t make it disappear. In fact, if you are intentionally overlooking your existing debts, there’s a high chance that you have plenty of it. So, if this situation seems familiar, stop running away from your debts and confront them immediately. Get your latest account statement and make a list of all existing debts. Once you have a full account of your debts, decide how you want to pay them off.
You Miss out on Instalments
If your outstanding dues are higher than what you’re capable of paying, you’re surely heading towards a debt trap. While you can always miss out on payments or limit your payments to minimum settlements, it will only make your situation worse. So, assess your monthly expenses and trim the fat! Yes, once you eliminate unnecessary expenses, it will be easier to afford your monthly bills.
You Have Taken Loans from Friends to Pay off Your Bills
If you need to borrow money from friends/family or have to resort to credit cards and cash advance facilities for paying monthly bills, you’re surely under tons of debt. Unfortunately, if you keep following this practice, you’ll end up running out of options for borrowing money. A better way to deal with this issue is by consolidating your existing debts with a low-interest, quick personal loan. Since these loans have a single, fixed, interest rate, dealing with them will be easier than handling multiple high-interest instalments.
You Cannot Afford your Fixed Expenses
Your monthly instalment is just a part of your fixed obligations. There are other obligations that you need to consider. Some of them include rent, transportation costs, grocery bills, school fees of your kids, etc. According to most financial experts, your fixed obligation to income ratio shouldn’t exceed 50%. So, if you find it difficult to afford your fixed obligations in the wake of instalments, chances are, you’re neck-deep in debt!
How to Escape this Debt Situation?
Juggling multiple debts isn’t an easy task. So, if you find yourself in such a situation, address it immediately.
There are two ways to decimate your overall debts. First is the snowball method where you pay off your smallest debts before eventually moving on to the bigger ones. Although this method takes more time, it builds your motivation to deal with the debt situation more comfortably.
Alternatively, you can also follow the debt avalanche method where you pay the high-interest debts first, before eventually focusing on the low-interest ones. This method helps you clear off your dues faster.
Regardless of the method you choose, make sure you take complete accountability of the situation and plan your monthly budget mindfully. Once you do this, it’ll be easier for you to pay off your dues and prevent similar situations in the long run.