Jun

The Problem of Debt

site management on June 28th, 2009

The Problem of Debt – The Complete Guide to Debt
By Philip McClarence

The problem of debt is getting bigger and bigger with more people finding themselves in the trap each day and the individual debt problems are getting larger and larger.

But what causes this? How can so many people be letting themselves get into this situation without realising?

Well, the problem stems from a number of sources. First, is the availability of credit (debt!). Everywhere you go, you find offers for money, loans of all kinds and cards thrown at you.

This makes it easy to owe money to multiple sources. You might have a home loan, a car loan, some unsecured personal loans, as well as many credit cards and quite possibly the worst, Store cards.

Credit is unbelievably easy to get. If you are like most people, you will get countless credit card offers through your door. All of them wanting to do you a favour as you have been ‘Specially Selected’! Oddly enough, none of them have your best interests at heart, their only interest is in getting you to borrow money from them so that they can make a profit by getting you to pay them interest for as long as possible.

Store cards are another example. Have you ever noticed how keen they are to get you to sign up for a store card at an increasing number of retailers. Ever wondered why? Well, there’s two main reasons. First, it encourages you to spend more money than you otherwise would have at their store and second, the interest that they make on these cards is huge. I was offered one the other day and while I had no intention of signing up, I was curious so I had a look at the APR. An astounding 29.9%! Sure they give you 10% off your first purchase but, that’s only because, if you don’t pay it straight back, you will end up paying them 3 times that or more!

Multiple sources of debt like this can quickly become a problem because, while each debt is relatively low, the combined debt can often get to large and unmanageable levels without you realising!

When you have many credit and store cards, soon the combined minimum payments can reach levels that you can only just afford to repay and even then, you are basically only just covering your interest charges without making any significant dent in the primary amount. How do you expect to ever pay it off like this? (Have a look at your credit card statements this month. Check your monthly payments and how much interest was added. This will probably be quite a shock if you don’t already know!)

Credit and debt are becoming a way of life and ingrained in our culture and perhaps this explains why most people simply accept the terms and conditions given to them. They assume that the contract is ‘right’ and that they have no control over it. However, you must remember that you are entering a financial contract with another party when you sign these documents and they have created the contract. Who’s favour do you think it will likely be biased towards? Most people don’t even know what APR they are paying on their credit cards never mind if there are any potentially harmful clauses in the contract and so when they get into difficulties, they don’t even know what their rights are and what sort of actions they could be facing as a result.

You are essentially signing a contract that means a legal commitment to earning and paying a set amount each month. This will be fine so long as you know what you are committing to and you are within your means. The real problems occur when you find that you are stretched. In this situation, unexpected events such as interest rates going up or sudden unemployment can cause real problems and hinder your ability to meet the legal agreements that you signed up for and the results can quickly become dire!

This article is an excerpt from The Complete Guide to Debt Visit My Debt Free Life.co.uk for more information on getting out of debt as well as Debt Consolidation Loans and ways to get your creditors to legally write off your debt!

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