Tips to avoid over-Indebtedness
As is currently apparent from the over-indebtedness Report 2014 of the Institute for financial services, despite a good overall economic situation in USA, the number of households considered “over-indebted” increases. In 2018, around 3.36 million households were considered to be over-indebted. Compared to the previous year, this means an increase of around 60,000 households! The average debt burden per household in 2018 was around $ 54,500 – a once again significant increase compared to the previous year at around $ 53,000. In particular, the average age of debtors now drops to 40.2 years. Here, the number of young people in debt is likely to have a significant influence, because in this target group the level of debt has risen most significantly.
Having debt does not mean being over-indebted
However, one thing should be clear on the issue of over-indebtedness, because not every debt is necessarily over-indebted. It is true that debts are to be understood as purely payment obligations first. Over-indebtedness is only referred to when one’s own financial resources are no longer sufficient to meet the financial claims from loans, etc. In this case, banks also speak of a so-called default of repayment in the case of loans.
How is it to over-Indebtedness?
But what are the reasons for an overindebtedness? The iff also referred to this issue in its study. The most frequently identified reasons for overindebtedness are:
• Income poverty
• failed self-employment
• Divorce /Separation
No question that the above reasons have to be regarded as hardly foreseeable, let alone avoidable. There are, however, over-indebtedness reasons, which are considered avoidable, if you adhere to a few simple rules. According to the study, more than a sixth of consumers are considered to be responsible for their own over-indebtedness!
Tips to avoid over-indebtedness
With a few simple tips and a changed behavior pattern, however, the risk of over-indebtedness can be significantly minimized:
1.) by keeping a budget book, it is essential to keep track of the monthly costs, because only those who look at their finances can assess what they can afford and what they cannot afford. In addition, it can be ensured that, for example, no excessive repayment rates are agreed upon when a installment loan is taken up.
2.) Create a household invoice, in which you test all costs such as telephone, Internet, electricity or Gas. If there are too expensive old contracts, then it must be checked whether the same services are not also available at more favorable conditions.
3.) do not show uncontrolled consumption behaviour. In 8.6 per cent of all cases, over-indebtedness is due to such a confusing consumption behavior. Thus, in particular, it is not possible to be tempted to buy from the various financing offers in the trade.
4.) equally problematic: a permanent use of the overdraft facility. If the account is in a negative position for a long period of time, you should consider replacing the overdraft facility with a more favourable installment facility.
5.) before making use of a installment loan, one should look carefully at the terms of individual loan offers and make detailed comparisons accordingly.