Tuesday, May 5, 2009

Bad Debts - How To Avoid Them?

In recent bad and tight economy situation, I won't be surprised if more and more wage earners are not able to support their current life style with limited monthly income. No matter how hard and difficult your situation is, never allow yourself to fall into bad debts.  

I listed below 4 ways to avoid from falling into bad debts:

1) Review Your Current Life Style
If your can't change the figure of your income, then you will have to change your current life style. Unless you can bring in more money, the easier way is to change your life style to the standard which can be supported by your current income. I know it's not easy, but always think far ahead. By  changing your lifestyle, you wont need to borrow any extra cash from anyone (Credit card, banks, loan shark, money lender, relatives & friends). It's much smarter to live on what you have rather than to live on tomorrow's money.

2) Plan Your Spending
Budgeting is the right word. I believe there are a lot of people out there who does not favour this word -  budgeting. But, in good financial practise, no one can run away from budgeting. Through budgeting, you will have a clear picture of your spending pattern and where your $$$ goes. Most importantly, it will avoid you to spend more than what you have. A lot of us have a visual budgeting (budgeting in our head). The best way would be put down your budget in black&white. You can either write it down in your spending book or list down in a simple spreadsheet. Do stick to your budget because it's meaningless if you have a budget but never bother to take it seriously.

3) Replace Credit Cards With Debit Cards
Yes, change from 'cr' to 'd' cards. If you're someone with weak financial will and hard to avoid temptations, you will be thankful for this smart move. The debit card function is almost similar with credit cards. The main difference is that there's a limit for your spending and most importantly, debit cards will definitely not bring debts to you. 

4) Avoid Taking Bad Loans
What I meant by bad loans are those loan which does not bring benefits to you such as huge car loan and personal loan or bank over draft. It sounds easy to apply and to get approval for these bad loans. But, when come to payment, it will bring you sleepless nights. If you must take a loan, then make sure you the payment is within your budget and remember to make the payment on time.

If you have any other ways to avoid bad debts, do share with me. Let's learn to stay away from bad debts. 

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