It may be obvious that people apply for loans because they need money that they have. But the real problem is, why not having and what they need?
One of the most common responses when you ask people why using both credit card or why he had to borrow money to make a purchase of a product or service justified because it lacked money just then or because my income is not enough for my expenses.
But behind this we must analyze whether a person really understands what it means debt and the consequences it can bring not only to their finances, but for life in general. Perhaps many would say yes, they know that they will not end up paying the same amount for which the credit requested (because of the interest rate) and they also know that without pay, can have a ‘financial’ death to be reported to credit bureaus. But always they say “never mind, I fail to pay” or “to finish it next month to pay.”
Well, yes, debt is not a bad thing. Indeed, it is something that may become necessary at some point in life, especially because you need money to invest in something that will generate income (such as housing or education); but when there are other reasons to do so and do not necessarily imply “put to work” that borrow money, the consequences can be devastating.
So, here’s a top of the most common and least desirable causes that lead people into debt, according to a study…
1. Spend more than you earn
Yes, it is the most common. People have major flaws in their budgets and lifestyles; making money and have never ever have to resort to credit cards or loans free investment to overcome common expenses such as food, transportation or payment for services. This is generated simply because a person feels that can lead a lifestyle of high consumption: buying luxury brands, lives in places that cannot sustain or ‘likes’ you know you cannot be given.
The real problem with this is that it becomes almost unstoppable cycle: once it starts to ‘believe most of what is’ want to continue to maintain that life and cut costs or think about a second income is not something that happens by the head of this person.
The solution is basic and simple: No apparent even to yourself. If you know you have an income that is not enough, look cut those things that make everything more expensive than you can afford or seriously consider obtaining a second job and sacrifice his time and personal life, to maintain that lifestyle.
2. Medical bills
Anyone it can happen and this reason are a little more ‘fair’ than the first one mentioned. Medical costs are soaring and when it comes to presenting a disease or a slightly more serious situation involving hospitalization or expensive drugs, pocket family will be the first to suffer, either because the situation is you or a loved one.
However, you have to be smart when it comes to borrowing for this reason: take credits that can handle, in good time, and that are commensurate with their income.
The solution: Search protected with adequate health programs. Sometimes people do not want to make an investment every month because they believe they have very good health, but to an accident or serious illness the total investment month will be a third of what you would end up paying in a hospital, for not having insurance.
Both as citizens and companies, there is always a responsibility to the State. And what happens is that when not being used to make contributions (as a salary increase or the acquisition of a vehicle) shock may be longer. The problem with this is the lack of planning and information about it: you always have to be aware of those additional expenses that may eventually involve things in investing, buying or winning that while you generate happiness or satisfaction, they can always get to have a cost.
The solution: Find out on time. No use you buy a car in September and the following year, in February, you find out you had to pay taxes, because surely it is something that no budget and, therefore, will touch debt.
4. Informal employment
Many people tend to think that this situation is temporary and will continue looking for ways to formalize. But the issue is that this can have an effect on your life, especially if you have to borrow to make ends meet. Often these jobs do not provide safe conditions for admission, although you devote time and effort. So keep in mind that you cannot count on money you do not yet have in your pocket.
The solution: Whenever you start a job of this type must ensure the conditions and be aware of the possibility of not being paid or not the expected amount. Thus, it is important to calculate your expenses, consider their savings and perhaps consider seeking a second job.
5. Funeral costs
Nobody plans when and how to die. And when you’re not ready for it, debt can acquire is quite large because he never thought he’d need much money to cover an event of this magnitude, which can exceed $5 million.
6. Inherited debts
Many people have the misconception that once their relatives die; your debts do with them. The issue is that this does not happen with all debts and maybe some of them are inherited by people who are in the will. Of course, many of them may be charged with the same heritage that leaves the person, but when their wants keep that property can be with debt, you will have to get out of your own pocket or find a way to reach an agreement with the financial institution to do so.
But this may also be the case, not necessarily an inheritance, but a loan. If you served as a guarantor or co-signer of someone who could not pay his debt, perhaps you touch out of your savings or take loans in order to prevent your name is reported to credit bureaus.
The solution: Use caution with such situations.
Almost like a marriage, divorce can have some high costs for which a person can never be prepared. It implies notary, lawyer and because the loss of certain assets or division of property itself. Furthermore, it should also consider joint debts and the very fact that, from now on, daily expenses will no longer divided into two more, which implies a total overhaul of your lifestyle and your budget.
The solution is always good to have additional savings in the style of an ’emergency fund’ and make clear the economic conditions, with your partner, from the moment of marriage.
8. Do not know about Money
Either because your family never instilled habits of saving or investment or simply because you never had the need to do a proper money management, you may not understand how the economy works and directly money. It is something that not always learns in school, but once you are an adult has to take responsibility and develop that interest in how things work.
This also has to do with communication skills, in fact to talk to your family or your partner about money without having to fear about it.
The solution: Get training, be interested in this, ask and seek advice and, most importantly, read Personal Finance.