The debt trap: 3 big mistakes to avoid

Don’t let your guard down. Be in control of your finances.

11:53 16 October 2013

For most, earning money becomes a primary but hopefully not a lifelong endeavor.  This we can and may do for as long as our mind and body can withstand the challenge and the pressure that comes with wealth building.  That is why it is utterly important to be able to manage our finances well so that when the time comes that we are no longer able to continue earning money either by choice or because of circumstances, we can still continue to live comfortably and securely.

•    One of the three major misconceptions that lead people to acquiring debts is that they believe it is for a good purpose and will eventually profit from it, such as student loans.  However, acquiring one loan may make us confident enough to acquire a second or third loan, then comes payback time.  When one loan cannot be paid on time and interest charges pile up, this is where the problem begins.

•    Another mistake that could lead some people to more debts is trying to squeeze in savings and investment while paying debts.  While saving and investing is good, it should be held in abeyance until major loans such as student or car loans have been paid off.  Trying to do the two simultaneously can often lead to more debts and more financial problems.

•    Lastly, another major mistake people make when it comes to financial decisions is being overly optimistic. In general, being hopeful can do us much good.  However, the contrary is true when it comes to financial matters because being realistic can really save the day.  Why do you think repo men never run out of job?  It is because there will always be some optimistic people who believe that they would be earning the same (or more) money to easily pay for a car loan five years after but then a crisis happens threatening job security.  The consequence could be financially devastating as huge interest charges and taxes can lead one to huge debts and in turn bankruptcy.

Try to avoid making these three mistakes and lower the risk of running into a financial conundrum that could drag on for many years.