Although the increase in debt contracted through personal loans may be higher among those over 55 years of age in some countries, indebtedness in general is not exclusive to an age group, but rather a generalized phenomenon that becomes more acute in times of economic instability. and interest increases, according to financial specialists.
An analysis of the fintech (financial technology firm) Go Bravo, notes that instability in income sources and a tendency to restructure existing debts with new loans lead many families into a continuous cycle of debt, and often into excessive debt.
Changes in the level of income and consumption habits, as well as lacking an emergency fund, are the main causes why the population reaches problems of over-indebtedness, according to this study. fintech global, carried out in Spain but whose results and trends can be extrapolated to different degrees to other countries in America and Europe.
“Over-indebtedness affects people of all ages and educational levels, including those with university studies,” explains Javier Velásquez, CEO and co-founder of Go Bravo.
Velásquez emphasizes the importance of readjusting budgets and adapting lifestyles to economic realities to avoid falling into this debt loop.
He points out that to prosper economically, resolve debts that have already been incurred, avoid becoming over-indebted and make intelligent decisions in the future, “knowledge and discipline in financial matters” are essential.
Asked regarding when it might be considered really essential to contract a debt (personal credit) with a banking or credit institution?, this specialist warns that “contracting a debt is not a decision that should be taken lightly.” He notes that “a debt, incurred from the point of view of need and not desire, becomes a potentially useful tool.”
Velásquez considers that analyzing the possibility of taking out a personal loan can be truly essential “when it is going to be used for investments that generate long-term value or to respond to vital needs that cannot be covered in any other way.”
For example, “a personal loan may be appropriate to allocate to education, which is an investment to prosper in the future; to the purchase of a home, which provides stability; or to resolve emergency situations that require an immediate response,” she points out.
Before incurring a debt
On the other hand, Velásquez consider it crucial to carry out a detailed analysis of five key aspects, before opting for the route of debt.
1. Evaluate the interest rate: “Not all rates are the same. Look for the lowest ones to minimize the cost of the loan,” he recommends.
2. Understand the terms and conditions: “Each contract has its ‘fine print’. Knowing it thoroughly will avoid unpleasant surprises,” she warns.
3. Analyze your payment capacity: “Examine your flow of income and expenses to ensure that you will be able to meet your credit payments without compromising your financial well-being,” he advises.
4. Be clear regarding the purpose of the loan: “Make sure the debt contributes to your personal growth or addresses an essential need.”
5. Explore different alternatives: Velásquez will continue to evaluate other options, given that “sometimes, saving or adjusting the budget can be more beneficial than going into debt.”
On the other hand, Javier Velásquez also offers some key strategies to negotiate and settle ongoing debts that we have previously incurred and regain our financial freedom.
After being in debt
However, Velásquez provides five keys and strategies “for those more daring” who want to negotiate their debts on their own.
6. Proactive communication: “Contact your creditors before problems get worse. The willingness to negotiate is usually higher when initiative is shown,” says Velásquez.
7. Debt restructuring: “Explore different options to modify the terms of your debt, such as lengthening the term or reducing the interest rate,” he suggests.
8. Consolidation: “If you have multiple debts, consider consolidating them (grouping them into a single loan or monthly payment), which might reduce your monthly financial burden,” he says.
9. Priority of payments: Velásquez recommends focusing on the smallest debts and prioritizing their payment. “Once they are settled, he will have more money to use to pay the larger debts,” he points out.
10. Emergency Fund: “Creating a ‘financial cushion’ will give you more flexibility and security when negotiating a debt,” concludes Velásquez.
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