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Debt

Debt
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There are times when people find themselves in debt. This is an obligation to pay money, goods and services at a specified time usually with interest. It may be a credit card debt, car loan, mortgage, college fees loan, tax liability, utility bills, insurance premiums or other consumer debts. The repayment terms and the interest are specified.

When you buy a home you incur a debt or mortgage. You are given a mortgage to buy the house which you would not have been able to pay for, from your pocket. You will enjoy living in the house in agreement that you will repay the mortgage with interest. The amount you have borrowed to pay the house is the principal. You will agree on the interest rates, the monthly repayment amount and the repayment period. This mortgage is a debt and you will use your future purchasing power to buy the house. If you default in paying the principal or the interest your home may be re-possessed and sold. This is known as foreclosure.

You may have borrowed a loan to pay for your education or college education for your children. You may have incurred credit card debts to buy household goods. Today people are finding themselves in difficulty because of the hard economic times, the high inflation and loss of employment or due to poor management of resources. The high cost of living has overstretched spending and people are finding it hard to afford the things they were buying at ease in the past. Loss of a job, death, sickness, disability or other factors may make life harder.

The consumer debt is taken to buy goods instead of investing. There are many companies issuing credit cards to ease consumer shopping.

Credit cards have become very popular making it easier to buy goods anywhere, fast and in a convenient way. People are also finding it hard to budget. Balancing the check book or tracking the monthly expenses has become difficult because the rate of spending is too high. Unsecured debt like credit card debts may carry higher interest rates than secured loans.

When paying your debts it is important to pay priority debts first and also the debts with high interest rates. Priority debts are the ones which will affect you negatively if they are not paid or where action will be taken against you. Your home may be sold if you do not pay your mortgage and other loans where the house is the collateral. The landlord might evict you out if you do not pay rent.

Water, gas and electricity might be disconnected when you fail to pay the bills. If you fail to pay tax you are prone to being declared bankrupt. Always pay the minimum required for each debt and then the money left after paying your expenses should be used to pay debts which bear the highest interest rates to avoid more indebtedness.

There are credit-counseling agencies which can help you manage your debts.

Last modified onTuesday, 02 April 2013 23:35
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