It appears that everyone is in debt. If you ever talk about finances with friends or family, you will find most people owe money on credit cards or personal loans.
It is a normal thing, but life is unpredictable, whether, through the loss of employment, sickness, or some other emergency, there are times when it is impossible to completely stay out of debt.
But, let’s first talk about the types of debt.
Good Debt vs. Bad Debt
Before we discuss if it’s natural to live in a cycle of debt, it’s important to understand that there is a difference between good and bad debt.
Good debt: A mortgage, a business loan, or some other type of asset that will make you more money in the future is good debt. Making consistent payments on a loan or a mortgage will not only improve your credit rating, but it will also give you access to larger amounts of money when you need it.
Bad debt: Bad debt is a liability, it is debt that you are unable to manage, you keep missing payments and the creditor adds late-payment fees, the debt is lowering your credit score, check this out as well: https://markjkohler.com/5-steps-to-get-out-of-debt-and-stay-out-of-debt/. You’ve got creditors calling you asking you when you are going to be able to make payments. There are no benefits associated with bad debt.
Why Do People Get into Bad Debt?
People get into bad debt for several reasons; however, in the majority of cases, it is down to bad financial management. When you spend more than you earn and don’t save, you are inevitably going to get into debt. But in general, here are some of the main reasons why people get into debt:
Keeping up appearances: A lot of people want to live a certain lifestyle, and since they can’t afford it, they take out credit cards and loans to pay for vacations, cars, clothes, etc. People like this are constantly comparing themselves to their peers, and they will go to extreme lengths to keep up.
Failure to budget: The problem isn’t that people who get into debt don’t earn enough money. As mentioned, they spend more than they earn, and this is because they fail to budget. When you don’t pay attention to the amount of money leaving your account every month, you are going to get into debt.
Lack of discipline: It takes discipline not to get into debt, when you are unwilling to make sacrifices such as cook instead of going out to eat every night or live without cable TV, you are going to get into debt.
Is It Natural To Live in a Cycle of Debt?
Being in debt is stressful, you are struggling to make ends meet, you are barely making your minimum payments, your credit cards are always maxed out and you’ve got bad credit so you don’t have any other way of getting any more money.
The bottom line is that living in a state of fear is not normal. You never know what might happen that you need extra finances, when you are in debt, you have no cushion in case of an emergency.
Research suggests that over 50% of Americans have maxed out their credit cards. With such high numbers, it does appear that it is normal to be in debt, but it is not. Think about it this way, fear is a natural emotion, it helps us sense when we are in danger.
But according to experts, it is unhealthy to live in a constant state of fear. You really must stay out of debt.
One of the reasons for this is that it causes a continuous flow of cortisol to be released into the bloodstream. When this hormone is present in high amounts, it attacks the body and causes life-threatening diseases such as cancer and heart failure. This is how the body reacts to debt, it causes stress and fear and this is not a natural state to be in.
Additionally, as mentioned, in most cases people get into debt because of their irresponsible spending habits. They manage to successfully get out of debt, and within a few months, they are back where they started. Why because they have not implemented good spending habits and so they revert to what they know.
How To Stay Out of Debt
Debt does not have to be a way of life, there are plenty of people who live debt-free because they are disciplined in their spending. Here are some steps to help you live debt-free forever:
- Budget: Evaluate your finances, how much money do you earn each month, and how much do you spend. Decide that you are only going to spend money on the necessities.
- Save first: Contrary to popular belief, it is more important to have savings than to pay off debt. Therefore, start by making sure all your minimum payments are up to date by setting up payments on autopay. After you have saved a $1,000 emergency fund, start putting more money towards your debt.
- Cut up your credit cards: Many people stay in credit card debt because they pay the minimum balance and then spend it by the end of the month. If you don’t have the discipline to stop spending on your credit cards, cut them up until they are paid off.
- Pay your balance’s in full: Credit card companies make money on the interest, but what the majority of people are not aware of is that when balances are paid in full, they are not charged any interest.
As you have read – http://www.musingsofamuseumfanatic.com/2020/04/ways-to-stay-out-of-debt.html – it is not natural to live in a cycle of debt. There is a difference between good and bad debt; and if your debt is a liability, you must pay it off to avoid ruining your credit.
The good news is that debt-free living is possible — if you are willing to live within your means. There is nothing wrong with enjoying the finer things in life, if you can afford it. But instead of getting into debt, find ways to make extra money.