The term “financial independence” is usually used to describe the condition, in which an individual has a sufficient personal wealth that enables him or her live without a need to work actively in order to meet basic needs in an indefinite period. It means that, for a person to achieve financial independence, one’s assets should generate more income than expenses. An asset is a person’s property that has some value and can be liquidated if a person is in debt. Liability is the responsibility of a person to provide compensation, which is related to a debt. A debt is a financial obligation or any obligation owed by one party or an individual to another party. It is usually granted with an expectation of repayment, either the original sum alone, or the original sum plus interest. In financial matters, a debt has a meaning of using future purchasing power in the present. The main objective of this paper is to discuss the problems of debt and their possible solutions.
Debt can have a negative influence on a person’s life. For instance, it can prevent an individual from acquiring a credit card or a loan. According to Goshgarian, most people in the United States of America are on possession of debts due to the credit cards. Almost everyone in the US is worrying about a credit card debt. Most people have no clue of what to do in order to get rid of this situation. Goshgarian claims that most credit card providers target college students who will probably find themselves in the immense debt after they graduate and move in the job market. Most card owners snap their cards in a hurry in order to take advantage of the lucrative bonus offers. However, these bonuses are the starting point of the financial disasters. Most of these offers target young people, namely students of high schools and colleges, who are not fully mature to understand the significance of having excellent credit as well as handling a credit card. Unfortunately, this usually results in a future financial chaos for these individuals. Too heavy credit card debt results into inability to afford minimum payments, acquire further credits and loans from the financial institutions. Some people go a step ahead of acquiring new credit cards with higher limits and lower interest rates and get rid of their old credit cards. In March 2009, more than 85 per cent of American households owned at least one credit card, and more than 60 per cent had more than four credit cards. The average college graduate had $20,000 in debt.
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Debts can also lead to the health problems such as stress, depression, anxiety, mental health problems as well as breakdown in relationships. Sometimes, people may even commit suicide in an attempt to get rid of the financial stresses. People who are stressed due to their financial problems may take time off work, which finally leads to poor productivity and absenteeism. As a result, this reflects an overall loss of productivity for any country. Very often, people seek for some legal advices, which lead to additional expenses. In terms of employment, debts can ruin the chances of a person to get employed. Even if someone appears to be the best candidate according to the interview for a certain job, one might not be hired due to a heavy debt. Thus, the employers may suggest that a person in debt may end up stealing from the company. They may also consider that if a person is not responsible for his or her own financial situation, it is highly probable that he or she will not be responsible for the work
Being in debt can also lead to one’s failure to achieve some personal targets such as owning a desired house or renting an apartment. In addition to this, the creditors may garnish one’s wages in order to get money that is owed to them. Under such circumstances, an individual loses money before getting it. Bad debts may also lead to poor results since the cost of servicing debts can extend beyond the ability of an individual or a company to pay. Furthermore, debts can lead to unexpected unemployment, business failure, financial hardships, stigma, and exclusion from the basic financial services.
However, there are significant solutions to all types of debts. A person can get out of debt problems by considering the following five steps. The first step suggests an individual to pay all the bills owed to the Internal Revenue Services. They must be paid in full and in time. It can be tricky for a self-employed individual to pay taxes. The government can withdraw money from one’s account without permission. Therefore, any taxes have to be paid first. The second debt that should be immediately paid is that with extremely high interest rates. Usually, this is a credit card debt for several individuals. It is necessary to pay the balance in full every month. After paying the government and credit card balance in full, one should also pay for the most necessary things in life. They include fixed monthly payments, food and utilities. It is also advisable to get rid of the extraneous expenses that may not be necessary for living. The most necessary things should be prioritized first of all. Finally, the last step to achieve financial independence is to consider saving one’s money with minimized monthly expenses.
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For further prosperity in financial independence, it is advisable for an individual to pay for everything by himself. This can be achieved by ensuring that money is deducted from the monthly income in order to cover the retirement and future financial planning. An individual is also supposed to be prepared for any emergency that might happen on the way. It is advisable to plan for at least 3 to 6 month crisis whenever an emergency occurs. Parents should also be prepared to meet college expenses of their children in order to reduce their possibility of falling into bad debts while studying.
In conclusion, it is obvious that the way to financial independence is quite long and tedious. Therefore, individuals must be prepared adequately in order to attain financial independence. Bad debts are the most common hindrance towards financial independence and, therefore, individuals should aim at reducing their debt level and try to get rid of their debts at all. People are advised to invest their money to the financial institutions, which offer a high return; this will further contribute to the wellbeing of an individual’s financial status and future financial security. In other words, one should let money work and always try to be debt free. An individual should not dip into his or her savings and other investments since it limits the possibility of attaining financial independence in the future.