Debt is a difficult thing to contend with, to say the least. While there are plenty of ways that we can try to deal with it or cope with it somehow, not every method stands equal amongst the rest. That’s probably the biggest struggle that many people face when they are trying to find ways to alleviate their debt somehow.
There are a lot of potential stressors along the way as well, unfortunately. That’s the other biggest issue, as you can probably imagine. Today, we’ll be delving into what debt is in the first place, then we’ll delve into some of the ways to mitigate its impacts on our lives. Clearly, this is something that hits home for a lot of us, no matter where we live.
Here in Norway, thankfully there are a lot of resources as far as handling debt, even if things are starting to feel overwhelming. For anyone who wants to learn more about this topic as a whole, make sure to stick around – we’ll be covering everything you need to know and more as far as debt and refinancing goes!
What Is Debt?
The first question that we need to answer is, of course, this: what is debt in the first place? There are a few ways to define it, but for today’s purposes, we are of course examining it in the context of credit agreements rather than anything else.
Specifically, debt refers to the money or financial obligations that one party owes to another – the borrower owes the lender, in these circumstances. When money is disbursed from a lender to a borrower, there’s an agreement to repay that amount back in full, plus interest, over a period of time. Just remember that there are a few different forms of debt even within this explanation.
Some of these various forms include loans, credit card balances, mortgages, or lines of credit. Perhaps the biggest thing to remember is that it is important to manage debt responsibly. While we’ll cover this in further debt later on, keep in mind that making timely payments and keeping the amount of debt within manageable limits can help you to avoid financial difficulties.
Accumulating Debt: When It Can Get Dangerous
Now that we’ve covered the basics of debt, let’s delve into some of the risks associated if you do end up accumulating more than you can handle. We’d like to start with a small disclaimer: the goal here is that you don’t end up getting into so much debt that it causes problems. However, there are a lot of ways that it could end up spiraling out of control.
Now, this first point isn’t necessarily applicable for everyone out there, but it was worth mentioning at the least. For many folks, if they go to college, they’ll end up with student debt. Admittedly, here in Norway and across much of Europe, this isn’t overly relevant. However, if you decide to study abroad (or did so, at some point), then you may be familiar with this system.
This is one of the biggest ways that consumers end up saddled with large amounts of debt with few options for refinancing or repayment outside of being stuck with huge bills each month. Obviously, this isn’t the only way that this happens, though.
As you can see on this page: besterefinansiering.no, sometimes the debt can come from things like a mortgage or an auto loan. When we make large purchases like that, it’s pretty much a requirement to take out a loan to afford them – at least for most of us. The unfortunate side effect is that this can land us in a lot of debt that will take a long time to pay off.
It’s when you start to combine multiple types of credit agreements that you can land in some trouble. You see, if you’ve already got sizeable repayments from a mortgage and/or an auto loan each month, adding more onto that already full plate can be a bit dangerous. This is often how folks end up with a bit more debt than they’re really prepared to handle.
Part of this is thanks to how readily available things like personal loans are. Sure, there are prerequisites and qualifications that borrowers have to meet in order to take out a loan like that, but depending on where the lender is from, they may not have to abide by the same rules. Be careful about borrowing online in particular, as there are a surprising number of scam artists out there who could trap you into a loan with extremely high interest rates.
What Happens If You Can’t Make Repayments?
Now, the last point we’d like to cover in this section is pretty simple, albeit a stressful one. There are a lot of potential repercussions if you aren’t able to make your repayments, but once a loan enters “default,” then there are several things that you should prepare yourself for, just in case.
Obviously, one of the biggest things to keep in mind is that when you make late payments, then you will often find yourself saddled with late fees and charges. Unfortunately, the worst part about this is that it tends to just make the situation worse, since if we can’t afford the initial payment, then the additional fees on top of that can be disastrous.
If things progress further, that’s when it can start to really pile on. Naturally, it can negatively impact your credit score, which can have some further implications down the line as well. At that point, things can start to feel hopeless, but you don’t need to panic – there are still ways to mitigate the situation.
Just bear in mind that if you do end up defaulting on a loan, then it could be difficult to restore your credit score. In fact, it will likely take several years of careful planning and consideration. Clearly, there are a lot of risks when we take out loans.
Mitigating The Stresses Of Debt
We’ve covered many of the bad things that can happen if you aren’t able to pay off your debts. However, it’s not all doom and gloom here. There are ways to help prevent this from happening, and it goes beyond the commonly given advice of “don’t spend money on things like avocado toast and coffees.” Plenty of other strategies exist as well.
The first thing that you’ll want to do if you know that you’re struggling is to talk to your lender. You see, in those situations, sometimes you can reach an agreement with them and figure something out. While this won’t always be the case, it can be a nice way to avoid confrontation – one missed repayment doesn’t have to be the end of the world as long as you are communicating and working on a plan of action.
One option that’s become a lot more popular these days though is known as refinancing. Essentially, it’s a method for us to adjust the repayment period, terms, and even the interest rate on a loan by taking out a new credit agreement that essentially replaces the old one. If your credit score has improved since you initially borrowed money, this could be a great option regardless of whether you’re struggling.
The point of refinancing is to get more favorable terms for the borrower. Sometimes lenders aren’t open to that, though, so you may need to swap lenders if yours isn’t interested in an agreement like this. That’s totally possible, though – some of the resources that we’ve offered here today can help with that, even!
Ultimately, refinancing won’t be for everyone. However, there are certainly plenty of applications where it can be very useful and helpful to borrowers. If you want to change your repayment schedule, adjust the interest rate that you’re being charged, or anything else like that, then it could be worth looking into.
The inherent risk is that there’s a potential that the lender offering you a refinancing loan isn’t really working in your best interest. Be careful when you’re considering the options available, and don’t forget to compare and shop around before committing with any lender – even your own.
What Else Is There To Know?
Overall, the world of finances can feel quite overwhelming. We certainly understand that, and we hope that this article can serve as a valuable resource for understanding debt and some of the things that come along with it. Our final word to the wise is that if you find yourself in a lot of debt that you can’t necessarily handle, try not to panic.
There are ways to work through that sort of thing, be it talking to your lender, refinancing, or something else entirely. Admittedly, all of these options can feel really stressful. It certainly won’t be a walk in the park. However, do your best to figure out an alternative option to simply panicking.
At the end of the day, a lot of this comes down to responsible borrowing. You can avoid a whole lot of catastrophes just by being mindful of how much debt that you’re taking on at one time. Hindsight is twenty-twenty, and we can’t exactly go into the past to prevent ourselves from taking on an extra loan. However, as we move forward, we can remember this valuable lesson.
If you’re ever feeling lost or like you aren’t certain how to proceed with your debt or loans, you can talk to a financial advisor or even your lender. They can help to steer you in the right direction, but you’ve taken the first step here today by learning more about it!