Indebtment is not a new thing in the 21st century. It has been around for decades. But over the past few years, it has intensified and become more complex.
People become over-indebted when their excessive personal debts make repayment difficult and cause financial distress. Financial stress is a common problem in many households. It can cause physical and mental health problems and lead to social isolation.
There are many causes of overindebted and financial stress – medical bills, unexpected expenses, divorce, etc. However, the symptoms of overinvestment can be experienced by anyone who is or has been in debt.
The Symptoms of Over indebtment that are Causing Financial Stress
The symptoms of debt causing financial stress are overspending, skipping payments, and paying interest instead of the principal. These are some of the signs that you might be overindebted and stressed.
- Exceeding debt limits and credit limits. Are you spending more than 15-20 percent of your take-home pay on non-mortgage credit repayments? Do you sometimes reach the maximum approved credit limits on your credit cards?
- Not knowing how much you owe. Have you lost track of how much you owe? Do you avoid reality by not adding up the total? Are you afraid to add up how much debt you have?
- Running out of money. Are you using credit cards on occasions when you previously used cash? Are you borrowing to pay insurance premiums, taxes, or other large, predictable bills? Are you borrowing to pay for regular expenses such as food or gasoline? Do you try to borrow from friends and relatives to carry you through the month?
- Paying only the minimum amount due. Do you pay the minimum payment—or just a little more than the minimum—on your credit cards instead of making large payments to reduce the balance owed more quickly?
- Requesting new credit cards and increases in credit limits. Have you applied for additional credit cards to increase your borrowing capacity? Have you asked for an increase in credit limits on your current credit cards? Have you obtained a cash advance on one credit card to make the payment on another card?
- Paying late or skipping credit payments. Are you late more than once a year in paying your mortgage, rent, car loan, or utility bills? Do you frequently pay late charges? Are you juggling bills to pay the utilities, rent, or mortgage? Are creditors sending overdue notices?
- Taking add-on loans. Taking add-on loans, also called flipping, occurs when you refinance or rewrite a loan for an even more significant amount before it has been completely repaid. Suppose a loan of Rs 100,000 has been repaid down to Rs 40,000. You decide to refinance the debt balance of Rs 40,000 by borrowing Rs 200,000 and using the additional Rs 160,000 (Rs 200,000 – Rs 40,000) for other purposes.
- Using debt consolidation loans. Perhaps you borrow from a new source to pay off old debts? Such action may temporarily reduce pressure on your budget, but it also indicates that you are overindebted.
- Experiencing garnishment. Garnishment is a court-sanctioned procedure by which a portion of the debtor’s wages is set aside by the debtor’s employer to pay debts. Wages and salary income, including military personnel, can be garnished.
- Experiencing repossession or foreclosure. Repossession is a legal proceeding by which the lender seizes an asset (called foreclosure if the property is a home) for nonpayment of a loan. When a lender repossesses the property, the borrower may still owe the debt because of a deficiency balance. A deficiency balance occurs when the sum of money raised by the sale of the collateral fails to cover the amount owed on the debt plus any repossession expenses (collection, attorney, and court costs) paid by the creditor.
The Effects Being Over Indebted Has on Your Life
There are many adverse effects of over-indebtedness. The results are not limited to financial concerns. It can affect your everyday life as well. For example, when you have a lot of money owing, it can make you feel more anxious and stressed, leading to other health problems such as high blood pressure or heart disease.
Some of the typically visible effects are: –
- You will not be able to purchase the items you need.
- You will be more likely to reach your overdraft limit.
- Your credit score will drop.
- Your ability to save money will be hindered.
- Your relationships with others in your life will be impacted.
How to Get Out of an Over-Indebted Situation
Most people are guilty of over-indebting themselves. And some of them have been in an over-indebtment situation for a long time. The key to getting out of an over-indebted position is to act and make changes in your life.
Some ways to get out from an over-indebtment situation are:
- Pay off your debt as soon as possible.
- Create a budget and stick to it.
- Cut back on unnecessary expenses, like going out with friends or buying clothes you don’t need.
- Cut spending by using coupons, switching to less expensive products, and not buying items you don’t need.
- Keep track of your spending and savings.
- Cut up credit cards.
- Seek professional help.
Conclusion: Avoid Debt Traps and Over Indebtedness
A debt trap is a situation where you feel stuck in a problem you can’t get out of, becoming increasingly difficult to handle. Debt traps are not just limited to personal loans and credit card debt. They also include student loans, car loans, and even mortgages.
Debt traps are a common problem that many people fall into. This can be done by taking on too much debt, not saving enough, or using credit cards to make ends meet.
Understanding your current financial situation and ensuring you live within your means is the key to avoiding debt traps. Unfortunately, debt traps also happen when people don’t plan for the future. Debt traps are usually associated with credit cards and more considerable debt, but they can also occur with payday loans or other shorter-term debt.
