The day you finally clear yourself of debt is certainly one when you should celebrate. Whatever the reason for your problems, it is always a massive relief to be able to feel free of stress again. Some people were victims of the recession and have yet to completely repair their finances. Others have simply lived beyond their means until the realization that their options were dwindling and they needed to act. There are people who simply did not appreciate that they were living beyond their means by using a credit card to subsidize their lifestyle. Suddenly many then reached their credit limits and found credit card companies far more circumspect about increasing those limits.
As a result, the following weeks were often painful until they worked out what they could do about their circumstances. In virtually every case the process of getting out of debt begins with a budget that must contain every piece of income and expenditure. Often such an exercise produces an expenditure list that is very poor reading. If this has been your experience and you have recovered from this stressful situation you have every reason to celebrate.
Learn the Lessons
In his 2021 year-end letter, Baupost's Seth Klarman looked at the year in review and how COVID-19 swept through every part of our lives. He blamed much of the ills of the pandemic on those who choose not to get vaccinated while also expressing a dislike for the social division COVID-19 has caused. Q4 2021 Read More
It is just the beginning because it is essential that anyone that has got this far in the process learns the lessons of the past. They must see the mistakes they have made and determine not to repeat them. There is no point in blaming others even though the recession took victims who had often lived a very responsible financial life. Those who had built up an emergency fund prior to the recession may well have avoided the worst effects of those years. If something unexpected comes along, it is potentially dangerous to have to resort to a credit card to meet the bill. Any balance on that card will incur a high level of interest which can be the start of really serious problems.
Money management is not a school subject nor an exact science. It is something that people often learn the hard way by getting into trouble and resolving never to go there again. There was a time when credit card companies went for expansion without many controls on whom they gave cards with a credit limit to. They offered 0% transfer deals which allowed consumers to have many cards and to juggle their finances between them. It was so easy to get into debt. The present levels of credit card debt in the USA are disturbing and of course a huge amount has had to be written off by companies whose clients have defaulted. Credit cards remain the biggest danger that ordinary people face because it is simply too easy to get into trouble and then face a high level of interest on balances month after month.
The simplest way for anyone to get out of such a tangle is to get a personal loan at a lower rate of interest. Those with regular income ought to be approved if they can show they will be able to make the monthly instalments for the full term of the personal loans no credit . Such loans are often described as ‘consolidation’ loans because they intent is to consolidate debt into a single monthly payment instead of what may be three or four credit card balances.
These are the mechanics of getting rid of debt but the process needs self-discipline. When credit cards are zeroed, their owners have a good deal of available credit. Ironically that actually boosts their credit score. So the answer is to keep the cards. After all a credit card is essential for online transactions, especially travel and accommodation. Without exception any spending has to be settled in full at the end of the month. Anyone who has been celebrating getting out of debt will not be celebrating for long if they slip back by spending using cards when they cannot afford to do so.
A budget often needs to be adapted along the way. It needs constant monitoring. Decisions on the use of a surplus are important. Those decisions should not be finding something else to spend money on if proper provisions for the future are not in place.
Even if the future remains relatively debt-free, there is still the matter of saving for a comfortable retirement. The Social Security System does provide benefits but they are nowhere near the level that will provide the comfort people will want. Having successfully negotiated the problems of debt, the next task is saving to secure the future, including the years of retirement when the monthly pay check no longer comes into their checking account. Everyone deserves a long and happy life; plenty of people find that elusive often because of the mistakes they made. If you have recovered from financial problems you deserve a pat on the back.