Given the financially draining challenges that people are facing, including rising interest rates and inflation as well as increases in the cost of living, means that many people will be using credit and taking on bad debt to make ends meet.
According to Neil van der Walt, Marketing Manager, DebtSafe, everything extra that people buy on credit adds up in the end, and it will continue to deprive them of their financial freedom.
What is bad debt, and why should you avoid it?
According to Van der Walt, bad debt is credit that:
– is used for items that don't have lasting value.
– does little to improve your financial outcome.
– decreases your wealth.
– steals or takes away from you.
– tends to have higher interest rates than other/“good” debts.
What are examples of bad debt?
Van der Walt said that examples of bad debt include credit cards, personal loans, temporary loans, pay day or cash advanced loans and retail store or clothing accounts.
Here’s a look at how you can avoid bad debt:
Know your financial situation and the value of your current debt
Have you scanned through some recent bank statements, inspected your credit record, and determined your debt-to-income ratio?
“Know where your finances are at and what ‘bad’ debts to avoid/get rid of soonest – it can be the warning sign you need to curb any festive spending this year,” Van der Walt said.
Stick to your allocated budget
Drawing up a budget plan and sticking to it can set you on the right path on your financial journey by helping you keep track of your finances.
“When it comes to preventing the adding of additional bad debt to your pile, it is vital that you continually work on your personalised debt management plan.”
Work on your debt management plan
Van der Walt said that it is important that people continually work on their debt management plans.
“Always do a thorough affordability check before taking on any debt, as this will help you determine whether the debt is more burdensome to your situation.”
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