Watch Where You’re Going So You Won’t Fall into a Debt Trap



Watch Where You’re Going So You Won’t Fall into a Debt Trap

Consumer buying trends may change with time, but one phenomenon that doesn’t change is the tendency that many people have to get into trouble through careless, impulsive or otherwise irresponsible spending. We’re not suggesting that you live an ascetic lifestyle or that you fret over every non-critical purchase, but we do recommend vigilance to keep from falling into a debt hole from which it may be immensely difficult to emerge.

Collecting experiences rather than things

On one level, current buying trends seem to point towards a profound change in values – a change for the better. As the UK continues to recover from the last great financial meltdown, whilst bracing for possible new crises, it appears that that there has been a huge shift in consumer spending habits. The phenomenon has been called the “experience economy”, a way of describing a trend towards people’s desire to spend their money on doing things rather than buying things.

Let’s face it: Many if not most of the things we buy will eventually wear out, break, fall into disuse and be either shoved into some dark closet to gather dust, or disposed of in some manner. Our recall of truly memorable experiences, however, will likely stay with us for the rest of our lives. Viewed from a long-term benefit standpoint, more and more people are realising that those memories are very real investments in our quality of life.

This is not to state that people are wholly abandoning the purchase of products; only that the trend is that we are growing more interested in products that provide us with the experiences we seek beyond a given item’s tangible value. Businesses have recognised the importance of experience over tangible value for some time, which is why adverts for cars, lifestyle enhancement products, and even mundane cleaning supplies have focused upon creating lifestyle-defining images with which to identify their products, emphasising the products’ implied ability to enhance consumers’ lifestyles even more than the performance of the product being sold.

Adverts for cars, for example, generally depict the driver motoring down some scenic roadway, the only vehicle in sight, which is quite the diversion from most drivers’ experiences of sitting stationary for long periods in an urban traffic jam. Adverts for personal hygiene products always depict the users of their products as being popular with friends and, of course, attractive to potential paramours. The essence of the marketing efforts is not geared specifically to endear consumers to the products themselves, but rather to the promise of experiences that purchasing the product could bestow. And the adverts are working quite well, as people are spending more on experiences rather than on hoarding material items.

On the other hand – and we’re not trying to put a damper on anyone’s joy – spending is still spending. And frankly, it’s just as easy to get into debt over your head by spending your money on holidays and dinners out as it is to become indebted through buying clothes and home furnishings and knick-knacks that you really don’t need.

Watching out for the pitfalls

Unfortunately, and as too many people have already discovered, getting deeply in debt is a lot easier than getting out of debt. Contrary to what many people believe, you can find yourself overwhelmed by debt without ever making a major purchase. As a matter of fact, many if not most people adopt careless spending habits, making numerous relatively small purchases, and before they know it, they have accumulated more debt than they can comfortably manage.

One of the most egregious examples of bad spending habits is making impulse purchases, either because the item caught their fancy, or because they bought an item out of boredom. Another bad habit that is all too common is eating out too frequently. Sure, the modest cost of a fish and chips dinner at the pub is not going to break you, but if you do it too frequently, those “modest” expenditures add up to quite a bit.

Such bad habits can be avoided simply by making a budget and sticking to it. And by budgeting in a bit of a safety net, you will have some protection, should you slip up once in awhile or face some unexpected expense.

Once you’ve fallen in, how do you get out?

Ideally, you’ll catch yourself and alter your spending habits before you’re so far into debt that you ruin your credit. But we live in a far from ideal world, and at some point you may find yourself in need of extra money and unable, because of credit problems, to get a loan from traditional lenders who require good credit.

Even if you find yourself in such a predicament, you will likely still have some options to help you climb out of the credit hole you’ve dug yourself into. Naturally, you don’t want to take on even more debt from an illegal lender, as such “remedies” generally leave you in an even deeper hole than before. There are, however, legitimate lenders – including banks – who will provide funding even for people with less-than-stellar credit histories. A bad credit loan, if selected carefully, used properly, and combined with a commitment to more responsible spending practices, can be a tool to get you out of the hole and help you get a handle on your finances. Just be certain that the loan you are getting will serve to get you out of your financial problems by offering terms that you can live with, and that aren’t likely to leave you even worse off.

There’s truth to the old saying that money can’t buy happiness, but money problems can certainly make you unhappy. Just know that there can be a silver lining, and if you do find yourself in a debt crisis you can use it as a springboard to develop better financial habits. With good money management you’ll be able to enjoy the occasional indulgence without wrecking your credit or compromising your quality of life.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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