How to escape the debt trap: A guide for the rest of us
One of the sad facts about further education in the UK is cost. People that go to university often rack up a lot of debt that can take decades to clear. It’s a rather depressing thought, don’t you think?
Student loans don’t have to get paid back unless you start earning a certain amount each year. Still, you might also have other debts like credit cards to clear.
Let’s assume that you’ve got some outstanding student debts. You are now working and are even about to buy your first home. How can you make sure you don’t stay in the debt trap for the rest of your life? The good news is there are many ways to lighten your debt burden. They are as follows:
Forget about saving money for now
The first thing you need to do is forget about saving cash. Why? The answer is simple. You need to put your spare money towards clearing your debt. Many financial experts will tell you that it’s better to save money when you’ve got no debts.
You need to remember that you’ll be paying interest on the debts you have accrued. Paying extra money towards those balances means you have less interest to pay. And that means you can pay off your debts quicker.
Of course, you should have some money put aside for a rainy day, so to speak. But, apart from that, don’t save up a stash of cash. Use the money today, not in ten years’ time.
Be savvy with any future borrowing
Don’t get me wrong. There will be times where you’ve got no choice but to borrow some more money. For example, you might need to buy a car or have yours repaired. If your emergency savings fund doesn’t cover those costs, you’ll need to take out a loan.
It’s important to be savvy about your future borrowing. For instance, if you need time to pay off the debt, forget about payday loans. Instead, think about getting a standard low-interest loan. If you own your home, consider a secured loan.
Consolidate your debt where possible
Have you got several credit cards and loans you need to clear? One thing you should do is look at debt consolidation loans. If you take one out, you can use it to pay off your other balances.
The beauty of such loans is they reduce your interest owed. Plus, your monthly payments are lower. You could, in fact, use the extra money saved to pay off your debt consolidation loan quicker!
Don’t be extravagant with your spending
You might fancy splashing your cash on some luxuries every now and then. Let’s face it; we all do to an extent! But, it can be a problem if you do that and borrow the money to do so.
Let’s say you want to buy a new flat-screen TV. You could reward yourself by paying for one in cash once you’ve paid off one of your debts. Or if you’ve received a Christmas bonus from work, for example.
The point I’m trying to make is that you shouldn’t buy any extras unless you’ve got the cash to pay for it.
Photograph by Jarmoluk