“Buy now, pay later” is an option many consumers take to get a new mobile or car; but doing it non-stop can lead to financial problems, like over-indebtedness. Here we tell you how it can be spotted, handled and, above all, avoided.
Months ago, Pedro realized he was having a hard time covering his personal expenses and staying on top of his financial obligations. Also, he was no longer topping up his savings with part of his salary but instead using them to pay for credit card charges from his last holiday, plus his monthly streaming subscription. Unbeknownst to him, he was over-indebted. Over-indebtedness is where a person or business accumulates debt that exceeds their current income.
There are two types: “passive” over-indebtedness, caused by unemployment and other sudden events that make paying off a debt impossible; and “active” over-indebtedness, the result of taking on debt beyond one’s ability to pay (like Pedro).
How to tell if you're over-indebted
Doing the maths, we should easily know when the money we earn isn't enough to cover our expenses and debt. But because financial biases work against us and cloud our financial judgement, we should learn the warning signs of over-indebtedness:
How to get out of over-indebtedness
When we realize we are or could be over-indebted, we should check our personal or household finances and make an exit strategy. If we don’t act fast, we risk running up more debt, with mounting late payment or default interest; ending up blacklisted; and ultimately damaging our financial health.
Remember Pedro? Here are some tips that could help him take control again of his personal finances and get out of over-indebtedness.
How to prevent over-indebtedness
Financial planning is key if we want to avoid getting or falling back into debt. Striking the right balance between income, expenses and savings is possible if we follow these tips: