Debt is a worldwide phenomenon. Almost every person has one type of debt or another and whilst getting something on credit or arranging an easy instant loan is attractive, there comes a time when it needs to be paid back.

Many organisations, including banks and retailers, will have additional fees if the payments are not kept up with, adding more burden to your cashflow.

Whilst one or two debts are generally manageable, the problems start when the unexpected occurs, an illness that prevents you from working, a household emergency and urgent car repairs are all generally things that people don’t usually budget for, and perhaps borrow again to make up the shortfall.

In order to stop the debts from snowballing, there are some specialist companies that can help. Debt management companies in Australia can formulate a debt management plan that replaces existing obligations and puts them all into an affordable repayment plan that is tailormade for your present circumstances.

Ultimately, some people needed to use the services of a debt management company to help them out of a very large hole and looking back on it, some made mistakes which exacerbated their financial situation.

Please see common pitfalls below.  Try to avoid these if at all possible:

1. Not Following A Debt Snowball

A debt snowball involves paying as much as possible off the smallest debt and paying the minimum repayment on others. Many people have repayments that were erratic, to say the least, and the advice they got from their debt management company after the event highlighted where they went wrong.

2. Forgetting To Budget For Emergencies

This was another area where people commonly slip up.

For example, their car engine blew up and they had to get it repaired as a necessity. Their debt repayments suffered as a result and they ended up acquiring late repayment fees.

3. Continuing To Use Your Credit Card

Some people are of the opinion, that spending a bit here and a bit there on their credit card is no big deal and doesn’t really equate it to spending physical money.

Nor do they bother to look for a debt solution. This is a mistake and seems blindingly obvious, in retrospect.

4. Not Making Lifestyle Changes

There are people who know very well they are in debt but just can’t seem to stop living how they’ve always lived.

Partying, holidays and clothes shopping were their reasons to live and although they could afford themselves the occasional treat instead, they just carry on as normal.

5. Not Making Enough Effort to Secure Extra Funds

Some people would readily admit that they aren’t willing to put in extra hours in the workplace in order to make their debt repayments easier. Some have been offered extra hours but always turned them down in the misguided belief that a solution would just suddenly materialise.

Looking back, if they’d put more effort in and done the extra hours, they would have paid off their debt a whole lot earlier. This is probably most people’s biggest regret. If you want to spend it, you need to earn it.

If you are struggling under the burden of debt, I’d strongly advise you to seek the services of a debt management company, as they can restructure your debt and stop it from snowballing out of control.

This post was published in partnership with Mediabuzzer. 

Do you know the difference between good debt bad debt?

Unfortunately, I only learned there was a difference between good and bad debt when I had clocked up R 130,000 (about $10,000) on 3 credit cards and was using one credit card to pay another each month.

For months, (or was it years?) I lived like this, not managing to pay down my debt. It was time to get educated and OUT OF DEBT.  I read helpful posts by experts like this one on debt consolidation,  bad credit loans Tampa.

So… What is considered Bad Debt?

Here are a few examples of Bad Debt:

• Credit Cards and Store Cards
• Taking out a Personal loan to go on a holiday or keep up with the Joneses
• Payday loans or a Cash Advance on your salary

Why is this kind of debt considered bad?

Here are 3 things that characterise bad debt.

1. It’s Costly

Bad debt is very expensive. Interest rates can be astronomical.  And the worse part is, the more desperate you are and the deeper in debt, the more expensive your debt becomes.

2. It’s Addictive

It’s way too easy to swipe a credit card and it’s just as easy to fall into a debt-cycle with payday loans and personal loans from loan sharks.  Bad debt usually offers a quick fix.

Of course, bad debt is not intrinsically bad. 

Credit Cards, used wisely, (paid up every month), can be extremely useful – and even save you money.

It’s the over-use and misuse of credit that causes our downfall.

3. Downward Spiral

Most bad debt is driven by consumerism and impulse buys. This creates a negative, downward spiral.

You get hooked on how it feels to shop until you drop and then the high costs keep you captive. We buy so much stuff, toys, clothes, shoes, make-up, only to part with it a few months down the line.

What is Considered Good Debt?

Here are a few examples of Good Debt:

• Home Loans
• Car Loans
• Student Loans
• Business Loans

So what’s the Difference?

Why are these considered Good Debt?

There are 3 main characteristics of good debt.

1. Low Cost

Interest rates are usually much lower.

2. Long Term

And repayments can be made over a much longer period of time.

3. Increases your income or net worth

Good debt either buys you assets or turns you into an asset (education).

The reality is, most of us would never have the chance of owning a house or car or getting a University education if it we weren’t able to borrow huge sums of money from the Bank.

My Top Tip:   Replace Bad Debt with Good

So how did I get out of all that credit card debt?

I took wise counsel from my boyfriend at the time. He’s now my husband.

Daniel’s advice was to pay off my credit cards and cut them up. Forever.

But he didn’t stop there.  He also offered me a way out and it saved me from financial ruin.

Daniel used his Home Loan to pay off all my credit card debt and personal loans (oh, did I forget to mention the other R 150k in personal loans).  This lowered my interest rates massively.

We set up a repayment plan and I paid him back monthly. Sloooowly. It was like our own home-spun version of debt consolidation and it set me free.

What an amazing feeling to see my debts decreasing, instead of increasing or maxed out month-on-month.

I’ve never applied for a credit card again.  Lesson learned.

Have you had any hard lessons in personal finance?  Are you a rehabilitated credit card user?  Or are you still stuck in that negative downward spiral?