Ove indebtedness is a problem that affects more and more people, especially due to the economic crisis and the rising cost of living. It is important to know the solutions to debt and to put in place strategies to reduce personal debt.
In this article, we offer you a guide with practical advice on how to get out of over indebtedness and regain control of your financial situation.
Definition of over indebtedness
Over indebtedness is a worrying situation that affects many individuals and families around the world. It is characterized by the inability of a person or household to meet its financial obligations, whether they are bank loans, home loans, consumer credit, or other types of debt.
This situation can have devastating consequences on the lives of the individuals concerned and plunge them into a cycle of financial insecurity that is difficult to break.
When an individual’s or household’s monthly expenses exceed their income, it becomes impossible to repay the debts they have incurred, and this is referred to as over indebtedness. Several factors can contribute to this situation, such as the loss of a job, a drop in income, unexpected expenses, poor financial management, or high interest rates on loans.
Over indebtedness can have serious consequences on the quality of life of those affected. It can lead to foreclosure of assets, difficulty finding housing, limited access to banking services, and a negative impact on the mental and physical health of individuals.
Faced with this problem, many countries have set up assistance and support systems for people in a situation of over indebtedness. The aim of these schemes is to find appropriate solutions to lighten the burden of debt and enable the individuals concerned to return to a healthier financial situation.
Causes of over indebtedness
Several factors can lead to over-indebtedness, including:
- Decreased income: unemployment, accident, illness, divorce, etc.
- Unexpected expenses: repairs, medical expenses, etc.
- Consumer credits: accumulation of revolving credits, too many debts contracted, etc.
- Financial mismanagement: lack of budget, overspending, etc.
Evaluate your financial situation
To get out of over indebtedness, it is essential to take stock of your financial situation. Draw up a balance sheet by listing all your debts (credits, bank overdrafts, etc.) and your income. Then calculate your debt ratio by dividing the total amount of your expenses by your income and multiplying the result by 100. Identify the problems
Once your balance sheet is established, identify the sources of your debt and the expenses that are problematic. This will allow you to put in place appropriate solutions to get out of over indebtedness.
Implementing debt solutions
It is important to implement debt solutions to avoid a difficult financial situation. Debt can add up quickly, especially if payments are missed or interest is high. By choosing an appropriate debt solution, such as debt consolidation, debt negotiation or bankruptcy, borrowers can reduce their debt levels and find a way to manage it effectively.
Reduce expenses
The first step in getting out of debt is to reduce your expenses. Analyze your monthly expenses and identify those that can be reduced or eliminated. For example, reduce your spending on entertainment, food, or energy.
Renegotiate your loans
If you have taken out several loans, it may be worthwhile to renegotiate them with your bank. You can thus obtain better repayment conditions, such as a lower interest rate or a longer repayment period. This will allow you to reduce your monthly payments and reduce your debt.
Consolidate debt
Debt consolidation, also known as credit consolidation, consists of combining several loans into one. The objective is to simplify the management of your personal debt and to reduce your monthly payments. By grouping your credits, you will have only one interlocutor and only one monthly payment to pay. This solution can also allow you to benefit from a more advantageous interest rate.
Use a debt mediator
If you can’t get out of debt on your own, you can call on a debt mediator. This professional will help you find solutions to reduce your debt and negotiate with your creditors. The debt mediator can also help you set up a debt adjustment plan.
Preventing over indebtedness
- Make a budget: It is important to set up a budget and stick to it. Write down all of your income and expenses, and then make a plan to allocate your expenses in a balanced manner. This will help you stay on top of your finances and avoid unnecessary debt.
- Saving: Setting up precautionary savings is essential to deal with the unexpected and avoid incurring new debt. Try to set aside a certain percentage of your income each month, even if it’s a small amount. These savings can be used in case of a hard time or to finance a project without having to resort to debt.
- Use credit sparingly: To avoid over indebtedness, it is important to use credit sparingly and responsibly. Before taking out credit, make sure you can afford the monthly payments and understand the terms of the contract. Avoid revolving credit, which often has high interest rates and can lead to excessive debt.
