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Most people won’t be able to escape from debt. It could be from the use of credit card, mortgage, education loan, car loan or personal loan. Initially, those are good debt because you use it to get something you want and you repay them on time. However, it may turn into ugly bad debt when you can’t pay them consistently and you delay or default the payment. It will become a nightmare that chases after you day by day until you pay it off. Don’t let yourself to trap into a bad debt situation, apply the 4 money principles below for a complete financial makeover:

Principle #1: Saving fund for emergencies & retirement

Many debtors are trapped into bad debts mainly due to the sudden need of huge money during the emergencies situation such as loss of job & major medical expenses. When large amount of money is need during emergency, but they do not have savings or emergency fund to be used for this purpose, they may need to turn into borrowing such as getting a personal loan or swipe their credit cards to resolve the immediate financial needs. When the bills come, if they have no enough money to clear what they have spent, they pay the minimum payment and the balances will carry forward to next month with interest. Situation gets worse when the debt snowball month to month until they find difficulties to pay it anymore. Don’t let this happen to you, you need to prepare an emergency fund or savings that can be used when the money is urgently needed.

Principle #2: Spend on budget

If you always find you have not enough money at the end of month and the next pay day seems far away, then it is an indication that you are at risk of overspend your money because you might need to swipe your credit cards to buy the necessary items during the month end, this spending behavior causes you have not enough money again next month and following months. This is how the debt is created.

In order to avoid this situation from happening, you need to control your money and spend on budget. You should keep track your expenditures to avoid over-spending. You may need to cut down some unnecessary expenses to make sure you spend within budget.

Principle #3: Make the correct buying decision

Buying impulsively may causes you spend on items you don’t really need. In order to avoid impulse buying, always practice delay gratification so that you can give it a second thought on whether you really need to buy it or not. Most of the time, you will find the item is optional to buy. This practice helps to make the right buying decision so that you won’t waste your money on item which you can live without it.

Principle #4: Understand the snowballing effect on debt repayment

Many people trapped into bad debt because they don’t understand how they get into it. When they spend by swiping credit card, they thought they can afford to pay it, at least the minimum payment. What they not aware is the interest keeps piling up and snowball from month to month if they keep paying just the minimum payment while continuing adding more debt into it. By the time they realize it, it might be too late as they already caught into bad debt. Therefore, you need to understand how the interests are changed for your loans and credit cards, and how the snowballing effect on the repayment may put you at risk of trapping into a bad debt situation.

Summary

Don’t let yourself to trap into ugly bad debt, apply the 4 money principles above for a complete financial makeover and helps you to stay way from bad debt.

Cornie Herring from http://www.debt-consolidation-1stop.info invites you to explore more information on bankruptcy alternatives if you want to know how you can get out of debt easily while savings you thousands off debt.

Article Source:http://www.articlesbase.com/personal-finance-articles/4-money-principles-to-stay-away-from-bad-debt-948245.html

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