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Debt...The Good...The Bad...& ...The Best
Debt & Its
Management

Debt is like any other trap, easy enough to get into, but hard enough to get out of. ~Henry Wheeler Shaw~

1. What is Debt?
Debt can be classified as anything that is owed by you to some other party.

At some point in our lives we will all accumulate debt. The type of debt that we may have incurred, however, may vary. Debt can be categorized into three distinct types; debt that is Good, Bad and, believe it or not, the Best.

Good debt, as the term implies, is debt that is used to acquire assets that are likely to pay income or increase in value over time. Generally, using debt to purchase property or fund education is classified as good because both of these expenditures are actually investments. If the money you are spending is likely to generate returns in the medium to long term, then it is probably a wise investment, and worth incurring that debt.
Bad debt is any debt used to acquire short-term consumer goods such as clothing, entertainment or electronics, for example. All of these items have a very short life span and usually depreciate rapidly in value when, or if, the decision is made to sell. Basically, once you put yourself into debt for things that you can not afford and do not need, you are putting yourself into bad debt.

Having elaborated somewhat on the first two types of debt, you may now be wondering about the last type. What is the Best Debt? The best debt, to put it quite simply, is having absolutely no debt at all, or reducing your debt burden as much as possible in order to live a virtually unfettered life.

2. How do people fall into Debt?
Few of us today have cash readily available to purchase a house, a car and appliances, just to name a few. We become borrowers through bank and student loans, finance companies, and credit cards. Many of us, however, let debt get out of hand.
Core reasons for persons falling into debt include:-
• Using Credit Cards to meet living expenses
If you are putting purchases on credit cards just to make ends meet or in other words as extra income, then you could be in serious debt trouble. Credit cards, after all, are a form of debt.
• Poor money management
A monthly spending plan is essential; it is very easy to spend more money than necessary and to rack up debt by spending impulsively, without one.
• Living beyond your means
If you are living extravagantly and are not saving, then you are living beyond your financial means, which is a core cause of debt.
• Spending cash “to come” in hand
If you spend money, in anticipation of receiving a lump sum, instead of it being of assistance, it can be a hindrance and can upset your financial situation.

• Financial illiteracy
One can find him or herself in debt simply by not being educated about finances. Without fully understanding how money works and grows or the importance of saving and investing for a rainy day, undoubtedly, debt would be incurred.



3. How to identify if you are in Debt?
To identify if you are in debt, start by writing down the value of what you own paralleled against what you owe. If you owe more than you own, you ARE in debt. Furthermore, if you are struggling to “make ends meet” that may be a major sign that debt is “knocking on your door”.
Other signs that you are in debt include:
• Taking loans from financial institutions to repay existing debt(s)
• Requesting extensions and waivers of bill payments
• Being bombarded by telephone calls and letters from creditors
• Having credit applications rejected
• Having “maxed out” credit cards
• Having items taken out on credit repossessed
• Having utilities “cut off” e.g. electricity, water etc
• Constantly borrowing money from the money lender, friends and family 

4. How do you emerge from Debt?
No one wants to remain in a position of indebtedness for any prolonged period of time. You must, make serious efforts to emerge from debt, because if you have borrowed money, it is your civil duty to repay it. Knowing that you have to emerge from debt is quite simple; however, the problem that arises is HOW. How does one begin to emerge from that “debt” sentence? The following are some debt reduction tips:

• Reduce the Number of Creditors
If you currently have two credit cards, for example, you ought to reduce that number to one. The best solution is to minimize the amount of expenses that you have to manage.
• Use automated payment/Salary Deductions
One way to emerge from debt is to honour your debts by paying them via an automated debit system for example salary deductions and/or standing orders.
• Get a handle on your spending by using a budget.
Most people spend without putting thought to their purchases. A good debt reduction strategy is to use a budget. Starting by listing all of your debts, your budget will determine how much you can devote to a plan for savings, spending and most importantly reducing your debt.
• Expect the unexpected.
Build a cash cushion worth three months to six months of living expenses in case of an emergency. If you do not have an emergency fund, unexpected incidents such as a broken freezer or damaged car, can seriously upset your finances.
• Record keeping.
Create a file in which you keep careful track of debts accumulated along with an idealized payoff plan. Record keeping is the sure-fire way of controlling one’s finances and debt.
• Formulate a Debt-pay off plan
In embarking upon a debt reduction plan, it must be decided which debt ought to be paid off. It is advised that one tries to pay off “bad debt(s)” first.
• Seek help!!!
If you are encountering difficulty repaying your debts, inform your financial institution as soon as possible. These institutions may be able to make adjustments to suit your financial situation by modifying your repayment plan (s). 

Monitor your money’s final resting place
Identify where your money goes by tracking spending over a period of time and eliminating unnecessary expenses, is another way of emerging from debt.

5. How to stay out of Debt?
One of the most effective ways to avoid any future debt problems is to learn to manage your finances consistently and exercise proper money management practises.
Despite the fact that it may seem like a daunting task, your debt management strategy need not be too complicated.
Here are some simple tips:
• Save as much as you can!
One never knows when it’s going to rain, financially speaking, so develop and sustain a good saving habit. A financial rule of thumb is that you ought to be saving at least ten percent of your monthly salary.
• Get priorities in order!
Know your monthly expenses, prioritize them and ensure that funds are allocated for savings. Develop this into a habit and you will surely remain debt free.
• Investigate before you borrow!
Comparison shop to find the best money bargain available, whether you’re shopping for money from a financial institution or applying for a new credit card, or simply purchasing an item.
• Once rid of debt, commit to debt free living!
Once one is aware of the mistakes made which caused debt in addition to being able to identify debt symptoms, use knowledge acquired to implement the cure to as a life lesson to maintain debt free living.
In light of what we have covered in the article, to sum it up here are some salient tips that all persons can follow:

6. Core Debt Management Tips
 Use any extra cash – whether it is savings, bonuses, extra pay checks, lottery winnings -- to pay debts.
 Keep records of credit card purchases, and a plan to pay for the item(s).
 Although one is required to make a monthly minimum payment, set a goal for paying major credit card debts (i.e. appliances) within a specific time frame like three to six months.
 Eat at home when possible. Avoid buying fast food and dining out too often.
 After one’s debts/bills are paid, allot a specified certain amount of cash for entertainment, shopping etc. When the cash is done, so too is the fun!
 Make extra loan payments if possible.
 Do ‘debt checks’ at intervals to keep track of how you’re going.
 Limit yourself to one credit card. Cancel all addition credit cards except the one with the lowest rate.

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