How to avoid bad debts!

Author : teriann

Do you owe any money?

If you respond no to that question, that’s great but if you have debts don’t worry there is light at the end of the tunnel.  The worst part about owing money though is that when the bills come they seem to come all at once.

Effect of debt

If you owe a lot of money should you simply continue doing so all while hoping that they would never find out? That is not an option. In Jamaica this idea of checking a potential customer’s credit was not so popular a few years ago with only a few banks reaching out and researching the service.

However this all changed with the implementation of the Credit Reporting Act which was passed in 2010 and its Regulations in 2011. Under this Act, companies may apply to become licensed credit bureaus, able to disclose “credit information” about a consumer in return for monetary reward. Of course the consent of the consumer is needed before any credit information is released to any third party.

If you have a number of bad debts this results in a bad credit report. Whereas some people can still get credit, having a poor credit report might make their situation wore as the lending organization might decide that you are too risky to lend money and so deny you access to their services. If you are given a loan despite having a poor credit report, the amount that is offered to you will be significantly less than to another applicant who has a better credit report.

Avoid Bad Debts!

The best route therefore is to maintain  good credit  and avoid bad debts.  Notice I use the term ‘bad debt’ because it may bot be possible to never be in debt but when the debt surpasses your income that becomes a problem.

So consumers can do the following:

(1)  choose wisely

It’s important to choose your loan after considering your unique circumstances. Some persons although they are offered a high limit on their credit card for example they choose a lower amount because they know that a greater amount might be too much temptation. There are also some loans that really have such a high interest rate that they make you lose more than you gain in the long term.

(2) be honest with the lenders

As in any relationship, honesty is important so consumers must provide their lending agents with truthful information so that a reasonable amount for payback can be determined. If for any reason you are finding it difficult to meet your payments go in to the lenders right away instead of waiting for them to send you late notices. Depending on the reason for your inability to pay their might be some arrangements that can be made before the debt goes bad.

(3) Don’t just pay the minimum balance

This applies especially to credit card bills. If you just pay the minimum balance then you will only be faced with huge bills at the end of the month.

So what’s your take? How do you avoid bad debts?

Let me hear from you.

Teri Ann Renee Paisley

Gleaner online writer

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One Response to “How to avoid bad debts!”

  1. Nikanta says:

    Oh yeah, its hard to have goals and aspirations in this economy and not incur some form of debt trying to achieve them. I had a period of heavy deductions coming from my paycheck which was mostly going to interest expense so I tried to consolidate in order to reduce the amount of deductions and an attempt at a lower interest rate. So I approached my financial institution which had turned commercial, had all the numbers worked out already and would have seen over $30,000 going back on my paycheck each month. But the bank did their own numbers and said that my debt ratio was more than their required 40% so they couldn’t consolidate. That was a crusher because hey I was already paying more than what I would have been required to pay them so I didn’t care about the percentage but hey if that’s their policy so be it. Suffice to say I wounded up in bad debt with their credit card because I made basic necessities more of a priority and the paycheck could only accommodate so much at that point. Thankfully I have since paid them off and cancelled the credit card. But that bad debt was an awful experience that could have been avoided and be a win win for both parties had they simply consolidated my loans at least the payments would have been coming directly from my salary, plus I would have been paying less based on the new arrangement, so in trying to prevent a supposed high risk situation the helped to created one.

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