How to Avoid Drowning in Debt
December 4, 2012
Most of us are pretty close to drowning in debt and we donâ€™t even realize it.
If you think of the Atlantic Ocean as a big sea of debt, some people in our country are living on land, out of the debt; but the majority of us are actually sinking in the sea of debt.
Cash Flow Submarines
People with positive cash flow have managed to build a little bubble, like a submarine, to protect themselves from the mortgage, auto, and credit card debt theyâ€™re surrounded by.Â We float from day to day, feeling relatively safe, making enough payments to keep the crushing weight of debt at bay for another month.
However, one little puncture in our fragileÂ positive cash-flow shell can spell disaster.Â As the interest charges, late fees, and damaged credit start to pour in through the hole, our protective shell quickly starts to lose its strength.Â As we rush to plug the hole, several others open up and itâ€™s just a matter of time before it canâ€™t hold back what we owe and weâ€™re drowning in a sea of debt.
How Not to Drown in Debt
1. Carry less debt.
Of course, the less debt you have, the closer you are to the surface and the more likely you are to survive a swim out of debt.Â Set up a plan to stop accumulating debt and start pay down what you owe.
2. Find additional income now.
The worst time to try and find ways to make extra money is when you really need it because then youâ€™re more likely to get sucked in by scams or shady deals.Â Instead, start looking now for different ways you can make extra money to help supplement your income in case you lose your job.
3. Buy insurance.
Try and get insurance to cover yourself against catastrophic expenses like car accidents, medical conditions, natural disasters.
4. Build an emergency fund.
Your emergency fund is exactly what you need to plug any holes that appear.Â Whatâ€™s really devastating is when several open up at once, ie. your furnance quits, car breaks down, and two weeks later you lose your job.Â You spend a bunch of money and then suddenly your household income is drastically reduced.Â For whatever reason, itÂ seems like problems like these seem to crop up in groups so build up an emergency fund that can keep you going through a few months of tough times.
Are you drowning in debt? Do you see a way out? Leave a comment and tell your story.
All posts by Ben Edwards