Escaping the debt trap

Freedom from debt is imperative in a world where the youth many a time create trauma for themselves and their families as well as their future by piling on debt after debt. Debt borrows money from your hard-earned future income. Who wants to spend money on something they have already used up and from which don’t get much value anymore? In an era where extravagant spending is the norm, the youth need to adopt an attitude and a lifestyle which enables them to enjoy money judiciously, spend on personal requirements as well as save money for future necessities. Too much money spent on unnecessary activities such as frequent booze partying on weekends and things such as expensive branded clothes are uncalled for as one will be bereft of money when the actual need arises.  

The trend these days is to borrow loans when one cannot afford status deeming things such as a Mercedes car, a plasma TV or an own villa and so forth. So many borrow money to buy a car for which they cannot afford with their savings. But the problem here is that the loan that they have borrowed creates debt. What is the use of having a first-class luxuriant car when you know you are going to be obliged to pay off some money from your income every month to ante up the loan? Is showcasing luxury more important at the cost of creating prodigious debts? 

There is a saying that ‘the only man who sticks closer to you in adversity than a friend is a creditor.’ Much as the saying holds true, debt and money management are two sides of the same coin. Increase in debt naturally means that one has been frivolous with money management. Debt trap is neither a coincidence nor an accident. The youth these days get caught in it due to their irresponsible spending habits. Once they recognize the habits that are precedents to debt trap, it will be easier for them to eliminate those consequently. 

In order to face the debt crisis that the whole world is facing, young people have to keep certain practicalities in mind while spending their pocket money, salary, parents’ income or any sort of possible source of income.  One of the habits they must guard against is spending money more than they actually make or have. It is very easy to use one’s all savings, shamelessly use credit cards and borrow money to fulfill one’s limitless desires. But before one can realize, credit cards are maxed out, savings get depleted and one is not a position to borrow money. So obliviousness with the way one spends money can cost your future income as it will go in countering the debt situation.

The extra money that the youth earn should be spent in clearing out all debts and one should keep the expenses within the monthly income. Living within one’s means is of utmost importance. 

Reducing one’s expenses and relying on monthly income and budget is the need of the hour. Many youngsters spend more money on things they crave for before even the income comes in their hands. This is to say that they rely on the money that they are yet to earn instead of using the money allocated in their budget. If a young person wants to purchase the latest mobile phone in market but does not have the money yet, he might use his credit card to pay off his bill. But this practice only adds on to his already existing debt situation.

It is better to repay the due debt each month instead of postponing the payment as the debt only continues to grow. Credit card companies these days charge outrageous interest if one fails to pay the debt in time. The youth find credit cards appealing so much that they use them for making normal routine purchases like clothes, entertainment items, groceries etc. This brings in a tendency to pay later for the goods they have purchased. So the best thing would be to use cash at hand to buy whatever they need rather than adding onto the credit card bill every month. Especially when someone does not have habit of paying off the entire credit card dues for that month, it is better they stay away from using credit cards for regular purchases. 

Using a budget to keep track of the amount one has incurred as an expense every month is the first step towards realizing how much money is coming and going out of one’s savings. When young people are in the habit of over spending their money, it is advisable for them to have a budget worksheet. In order to lend a hand in the household money management, they need to be aware of personal finance situation. They can divide the expenses under various sections such as housing cost, transportation cost and so on and debt payments must be one of the notable sections under expenditure. 

Apart from this, they must cultivate an attitude of prioritising debts along with making and following a budget. They can put their debts in order according to highest to the lowest interest rates. While budgeting, they need to have an emergency fund wherein they put any surplus income or atleast some money every month into it for any situation that suddenly requires money. For instance, if one’s car needs a repair which is unseen, then one cannot go borrow money to add on to the debt. One needs to save enough money in the contingency fund incase of any immediate unanticipated needs.

It is important that the net income for each month that is whatever is left out after paying off all debts and expenses, is updated in the budget worksheet. When one is living within their means or monthly income, it is preferable to stop using credit cards. If one cannot buy something desirable outright, then saving must be done separately for the desired item each month. This saving can be used to purchase whatever one wants extra for their benefit, for instance a TV. By using credit cards, one will not see how much one can actually afford considering their financial constraints. Using cash has a more significant psychological impact than using plastic. It feels like one is spending more money, so you will ensure that you spend less. This is not the case when one uses credit cards. One will get the feeling that one can pay later with respect to credit cards. But in reality, there is no question of later; procrastination is the thief of time when it comes to paying debts specifically that of credit card companies. 

The youth of these days being smarter than previous generation can develop an attitude showing interest towards financial planning which entails monitoring and reevaluation of their financial resources. Once they are aware and weigh the financial assets against liabilities, they will get a clearer picture as to how they can ward off debts. The task of goal setting matters here whether it is long term or short term. Long term finance goal might be ‘ten years from now my annual income would be ten lakhs.’ and short term goal might be ‘I need to save money for a new laptop in the coming month’. 

Planning such goals will make the youth practice frugality wherever required and cut down unnecessary expenses. They will look at different ways to boost income rather than ways to squander their money which much easier.  Increasing the employment income can be one of the effective ways of escaping the debt trap. The incisive young minds can learn how to invest in stock markets which is a surging trend among wealth-driven families. These days one can take the help of a financial counsellor as well to figure out ways to pay off debts. 

Charting out a financial roadmap and a plan is not difficult anymore, as we have professional these days who offer assistance  be it accountants, investment advisers or financial planners. The youth have to persevere and be disciplined in order to meet their money management goals.  

Discipline when it comes to money management also involves a lifestyle which is not ostentatious. These days youngsters in a bid to flaunt wealth forget to save money. They spend money on unnecessary things. For instance, if one needs a car one can go for a cheaper car which would serve on a utilitarian basis than for the sake of status symbol. A Tata Nano car will be the right option than a Mercedes car if one has only three lakhs as the maximum budget for car. What is the need to borrow a car loan for a luxuriant Mercedes? Sometimes young people need to spend money just for necessity and not on their greed. Impulsive purchases can be avoided when one is caught in a debt trap as most of the money that can be paid off as a due goes off in expensive clothes, gadgets that have come into the market. 
If one does not require something on a need basis one can always buy it later when financial circumstances permit. 

If one wants a lifestyle that reaps monetary benefits then one must ensure that one has  previously invested in a good asset such as real estate or gold as atleast these even if constitute the debt list help one to leverage oneself and pay off the other bad debts. Land and gold atleast guarantee more money than you invested when sold.

At the end of the day, having fun, spending money desirably and partying is allowed provided one has paid off all debts. Getting a rewarding job, budgeting, clearing all dues and ultimately owing oneself a healthy, fun-filled, responsible and a happy lifestyle is the way to live a debt-free life. Striking a balance between frugality and liberality when it comes to money is a rational attitude that can be embraced by youngsters especially the newly graduated ones.

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