08 December 2020
Debt leads to fragility. The major concern that could be raised here is a question “how to escape from the trap of debt?” The first thing that needs to be done in order to provide a right and proper answer to this question is the analysis of today’s global economy. The analysis will include the most crucial point of why today’s global economy has become too much debt-dependent. It would be best if you were sure that the concept and idea that this debt-dependence is the result of the central bankers’ whims is a complete misconception. There is no reality in it. The primary and actual cause of this dependency is the increased desire to save rather than to invest. This factor has caused a decrease in the real interest rates and made everything reliant on debt.
Eccles had made this point in prominent words and said that if inequality and injustices cross a specific limit and go beyond the boundary, the policymakers will ruin the entire economy that certainly weakens the system because of high unemployment and ever-rising debt.
There were two main points made by the paper on savings glut. The first point states that the top 1 percent income distributors’ savings and reserves have increased, all thanks to the rising inequality in the US. This rise in savings is not going along with the rise in investment. In fact, the rate of investment is falling. This increment and rise in the top 1 percent distributions’ savings resulted in the increase in dissaving and usage above income in the bottom 90 percent income distributors.
This is the primary cause of the increase in debt. In addition to this, there are college debts that play a significant role in making the life of a student hard, and all their life, they pay for these never-ending debts. It is somewhat true that no matter how hard we try, these debts are always one step ahead of us, and we cannot cope with them. But here are some ideas for you to make the entire process faster and more bearable. It’s a great escape plan for you. Follow these steps to be able to compete with the large amounts of debts that have not only made one’s student life difficult but are an added burden too.
Nip it in the Bud
The first and the most important thing that should be done while dealing with the debt is to pinch it and get a hold over it in the starting. If you are a student and the only source of debt is from your education, the best thing you could do is make sure not to borrow money anymore. Try to manage your expenses within the amount of money you own. For example, take a situation in which you plan on buying a big thing that retails for a large amount of money. Don’t ever buy it until and unless you have the real money to buy that thing in your hand. Never use your credit card for this purpose, as this is going to increase your debt only. Some people find it challenging to spend consciously while getting a hold of oneself is pretty more uncomplicated. If you are someone who spends lavishly, try and work on your habit to get rid of the debt. The main focus should be on paying the debt that you already have and not on adding more to it.
Reshape Your Budget:
Let me ask you a simple question. What do you usually do if you get stuck in a situation and can’t find any way out? I don’t know about you, but what I do is sit down at a place, think it over, and find the loopholes. The central part is to try and fill those loopholes. That’s precisely what is needed with the finances. If you are unable to find the reason for your unmanageable expenses and badly want to buy something too expensive, sit down at a place and reconfigure your budget. Include every little expense and find out if you end up with a surplus or a deficit. If it’s a surplus, give all the additional amount in paying off loans and if it’s a deficit, reshape your budget and remove all the unnecessary things. Remember, you have to keep the necessities in the budget only and not the wants.
Reserve Money for Emergencies:
I’m pretty sure you must be shocked to see this point as we are here talking about an escape plan to get out of all the debt. But trust me, this is a much-needed thing. You would probably be wondering how you would be able to save so much money even when you are already in debt. Leaving a large amount of money aside and that too untouched is pretty unreasonable. But this is also an effective way to save you from taking more debt in the future. For the sake of argument, consider yourself in an emergency situation, and you have no reserve money to deal with the emergency. Wouldn’t you be forced to take more debt? And that is really, very sad. So, always consider having an emergency Piggy Bank with you.
Make a Game plan:
You are aware of things that lead to debt and various other points that need to be kept in mind while paying off debts. Now, it is the right time to figure out what approach you should take in order to pay off your debts. Let us talk about the number of loans first. If you have only one loan or a single debt on you and have a single interest rate to be worried about: it’s incredible. Make a habit of giving all the extra money to pay off the debt at the end of the month. Another thing that can be done is to set a particular percentage of your monthly income that needs to be given to the debt, no matter what happens. This will save you from having empty pockets at the end of the month.
Now, let’s talk about multiple loans. It’s pretty standard as almost all of the people have more than one debt on themselves. There are several different methods to cope with multiple debts. The first is to start paying off the smallest debt, regardless of the interest rate. Although it will not save you a large amount of money in the longer run, it’ll give you relief and save you from any stress because of that debt. Another approach is to arrange your debt in the order of debt with the highest interest rate at first, followed by the ones with low-interest rates. Don’t consider the amount of debt in this case and just pay according to the interest rate. Both of these methods are pretty efficient and smart. So, you can choose anyone that suits you the best. But the main thing to keep in mind is to stay committed to yourself and your finances.
Paying off debt sucks, but the best thing to do is look for the most efficient ways and try to get rid of these debts as soon as possible.