Debt and credit
To be financially healthy and independent, it is important to keep track of your income and expenses. If your everyday expenses and purchases exceed your income, you will have to tap into savings or borrow money.
When you borrow money, you incur debt. For most people, large investments, like buying a home, are only possible when they borrow money. As long as you are able to repay the money you borrowed within the required time frame, debt is not (yet) considered problematic. However, borrowing money costs something, more or less depending on its type and term. Debt becomes a problem when people become unable to pay it back. Often, people do not see this problem coming. Payment reminders are often ignored, out of shame, desperation or lack of knowledge; as a consequence, the debt burden keeps growing. Moreover, people sometimes do not know how to handle debt or that there are ways to escape overindebtedness.
Debt and credit: How to deal with it?
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Regardless of the amount, debt can have financial, social and even health implications. Therefore, it is important to know: What does indebtedness mean? What does overindebtedness mean? What can be done to avoid overindebtedness? What are the potential consequences of overindebtedness? How can these consequences be minimized or avoided altogether? These questions are discussed in greater detail in Debt and overindebtedness and Consequences of debt and ways out.
Sometimes we cannot or do not want to wait until we have saved enough to buy something, so we borrow money. People usually borrow money by taking out a loan. It is important to know that it makes a difference whether a loan is used to finance something of lasting value, like a house or an education, or for short-term consumption, for example going on vacation. Loans come with many obligations and various costs and fees. There are different kinds of loans that cater for borrowers’ different needs and preferences. Before taking out a loan, it is important to know what a loan is, to inform yourself about what types of loans there are, how they work, and how much they cost. And don’t forget: even an overdraft on your bank account is a – very expensive – kind of credit.
For more information, go to Loans and loan costs and Types of loans and leases.
