Debt is an ugly word that many people have become familiar with in the last couple of years. While it is not something new, many people say that they had no idea they had so much until it was too late to do much about it. Here are some thoughts about how to avoid getting in debt over your head.
You should know…
Your Total Indebtedness
It is easy to bury your head in the sand concerning just how much debt you really have. Without some way to measure debt, people can just go on their merry way thinking all is well – when disaster is right around the corner.
Having a family budget in place will help you to be able to see at a glance the overall statistics of your finances, enabling you to have better money management. Liz Pulliam Weston at Moneycentral, provides an excellent formula to be able to determine your leverage ratio. This is a figure that investing companies use to determine the value of a potential company for an investment. When the ratio is too high, it serves as a warning to potential investors.
Debt can only be determined by how much income you have in relation to it. Do you know exactly how much money you bring in each month? People with debt problems may be tempted to not know because they really do not want to know. When you think about it, though, does that make sense? Instead, once the reality of it is known, then they can act quickly by either reducing their expenses by a specific amount each month, get a second job, sell an extra car, etc., and save themselves from ruined credit.
Here is another area that is affected by a lack of income. If you do not have a savings plan and are not putting money into a savings account on a regular basis, then debt is apt to hurt you even more. With an emergency fund you can have a temporary bailout of your own, if you should lose a job or face some financial emergency.
Your Financial Goals
Here is a fourth check on your financial reality – Do you have any financial goals? Apart from having any real goals that you can identify, such as saving for a house or retirement, you are apt to spend more money down a drain called convenience – and very little will ever be saved each month.
Instead of being one of these people who have to get an emergency bailout called a debt consolidation loan, or a bankruptcy, why not take a serious look at your finances today and begin to face the music now. This way, you can take some steps to avoid a possible financial collapse – which could possibly come in the very near future.