Getting into debt is much easier than you think. You may consider yourself quite good with money, and then before you know it, a few impulse buys can get you in the red. If you are not financially literate and don’t get on top of your finances, the debt can accumulate a lot of interest and get on top of you. Here are some top reasons people get into debt:
- Commonly the number one cause for getting into debt is a big cut in your salary. The trouble with this is that you have very little control over it. For this reason, it is wise to start saving money as a backup. Even the smallest amount of money going into a savings account each month can be helpful.
- You are trying to build credit. According to Wonga SA, only 43% of the 18000 people they surveyed in 2015 understood what a credit report was. They say that there seems to be a lack of knowledge in this area. However, it seems counterproductive that to buy any large asset, such as a house, you need a good credit report – but without having had credit in the past, you can’t build such a good report. The bank or lender will want to know you are good at repaying debt, so getting out a credit card can be effective in this scenario. You can buy on it, and repay it back quickly, and this can build a good credit report to please your lender. However, you may find that spending out on your credit card and not repaying on time can accumulate debt which will undermine your ability to obtain a good credit report. The lesson here is to be very careful. As Wonga suggests, clueing yourself up on what you are borrowing and the exact terms and conditions is vital to make this process go well.
- Overspending/impulse buys. It is all too easy to overspend in this consumerist world where advertising is with you 24/7. Even if you didn’t think you needed a new car, a swanky advert can convince you otherwise. So, be wise with what you’re shown on TV. Don’t fall for snazzy adverts and think whether you really need the item before purchasing.
- Emergency situations. Life happens and sometimes, you are presented with a large bill, like a medical expense, that you couldn’t have foreseen. In this situation, drawing on credit can sometimes be your only option. And that’s OK – so long as you know what you are borrowing and how to repay it over the coming months.
- Many people get into debt with school fees. The idea is that your education will give you a better paid job, and so you can repay the loan in the future. To some extent this is a great idea, but unemployment is a growing concern as competition for high paid jobs is rife. If you are struggling with debt from education, look into grants or low interest loans that you can transfer your balance to. Always speak to someone if you are worried about debt.