Because credit is so easily to get, we’ve become used to the idea of owing money. Putting off the pain of paying for things may seem like a good idea now but, sooner or later, your debt will catch up with you.
More and more South Africans find themselves imprisoned by debt – don’t become another victim. Here’s how your can avoid the most common debt traps:
Instant payday loans
A payday loan is a bad way of borrowing money, mainly because it comes attached with extremely high interest rates. Although the small loans are supposed to help you until you receive your next paycheck, in many cases, individuals cannot pay back the loan on time, which makes them liable for hefty fees. Usually, individuals need to take out another loan to pay for the original one; this can become a vicious debt cycle.
How to avoid this debt trap: Avoid small loans at all costs. If your salary is not enough to live on, read our blog on how to make more money.
Credit card rewards
The promise of free trips, cash back, vouchers, free hotel stays among other great perks is enough to motivate almost anyone to get a credit card. Many individuals sign up for credit cards with good intentions but, instead of enjoying the rewards, they end up falling into debt, mainly because it is so easy to make extra purchases.
How to avoid this debt trap:
Don’t take out a credit card if you do not have proper money management skills to use the card responsibly and pay off the balance on the card every month.
Home equity loans
Home equity loans, also known as “fool’s gold”, are extremely dangerous and leave many people neck-deep in debt. Using the equity of your home as collateral for purchases may seem like an easy way to get your hands on some cash; however, if you miss payments, you can end up losing your home. The loans are very similar to credit cards, except a lot bigger.
How to avoid this debt trap: Don’t make purchases beyond your means, even if you can get your hands on cash easily.
New car loans
Cars depreciate almost immediately after leaving the showroom floor and continue to depreciate thereafter. When you finance a car, not only do the monthly payments take a huge chunk out of your salary, but you also have to pay a large interest rate every month, leaving you with less disposable income.
How to avoid this debt trap: Calculate all the exact costs and interest that come with buying a new car. Only take out a loan for a new car if it is suitable for your financial circumstances. Remember that taking out a car loan is a long term commitment that you need to consider carefully.
Are you in debt?
You know you’re in debt when your monthly salary cannot cover your expenses and debt payments. Debt is a scary thing that thousands of South Africans have fallen victim to. If you’re struggling to manage your debt, call Debt Rescue today.