Indebtedness is a financial tool that allows people, companies and governments to obtain funds to finance projects and expenses that could not otherwise pay. These funds are obtained through loans and credits from different sources, such as banks, financial institutions, investors and other lenders. In exchange for these funds, the borrower undertakes to return the money borrowed, along with interests and any other additional position.
Indebtedness can be useful for financing long -term projects, such as the purchase of a house, higher education, the development of a business, infrastructure construction, among others. However, it can also be dangerous if it takes too much and is not handled properly.
How to handle indebtedness
Managing indebtedness can be a challenge, but there are several strategies that you can follow to help you get out of the debt and stay free of it in the future. Some of these strategies that you can apply to handle indebtedness are the following.
Budget
Creating a budget is an important step to understand how much money you are spending and where you are spending money. You can start making a list of all your income and expenses, and then classify them into categories, such as fixed expenses, variable expenses and savings. Once you have identified your expenses, you can search for areas where you can reduce your expenses and save money to pay your debt.
Pay more than the minimum payment
This will help reduce the amount of interest you are paying and reduce the time you will take to pay the debt. The minimum payment only covers the interest and a small amount of the main debt, so if you only pay the minimum payment, you will be paying the debt for a much longer period of time and paying more interest. Paying a little more every month, you can significantly reduce the amount of interest you pay and pay the debt faster.
Prioritize debt
Prioritizing debt means paying first debts with the highest interest, such as credit cards, to reduce the amount of interest you are paying.
This is important because the lower the interest rate, the less money you will pay in interest and more money will be dedicated to reducing your main debt.
Negotiate interest rates
If you have debts with high interests, consider talking to your creditors to see if they can reduce their interest rates.
Some credit card companies and lenders will be willing to negotiate a lower interest rate if you show you that you are committed to paying your debt and if you inform them that you are considering transfer your balance to another credit card with a lower interest rate.
Avoid new indebtedness
Once you start paying your debt, it is important to avoid new debts so that you do not find yourself in the same situation in the future. This means avoiding requesting new credit cards, avoid requested more money and trying to live within your media.
It is important to remember that the debt does not disappear overnight, it requires continuous effort and a change in financial behavior.