With the state of the economy in turmoil and an uncertainty of employment, people today should try to avoid debt as much as possible. This will assist with any stresses if their income may change; requiring less money for less bills, ensuring that even if the income goes down, the debtor will not lose everything due to non-payment. While there are some instances, such as purchasing a house that requires a buyer to go into debt, other things such as medical bills, credit cards and even car loans can be avoided to stay out of debt.
Buying a house is one of the most important things a person will buy in their lifetime. They search for the best price; the best floor plan and the best neighborhood to live in until they find that perfect house. When they find that house however; they go to the first bank that will give them a loan for it, even if the rates and the payment are too high. When any payment is too high, it will go against the borrower's debt to income ratio; meaning that their debt ratio will be high compared to what their income is. This affects not only future loans, but the credit report as well.
Other loans that people do not realize they can do without are credit cards and automobile loans. Picture this; a borrower has a great job, financial security although it is only due to credit cards, there really is not anything in the bank. This borrower decides he wants a nice car; with all the bells and whistles, and the high price to go with it. Now, instead of paying cash for this car, he takes out a huge loan to pay for it. This payment is not uncommon to be as much, or sometimes more than a house payment. Now, the borrower goes into work to find out that there is no longer work for him to do; he loses his job and most of his income. Which goes first, the house or the car? Could be even both. Now, if the borrower decided to purchase a less expensive vehicle, where cash could pay it off, he would still have the car; and possibly even the house.
While credit cards seem like they are good to have at the time, when the bill comes, showing the borrower they owe much more than they spent, they realize credit cards are really mistakes waiting to happen. Credit card companies check on their holders to see what their income situation is as well as their debt to income ratio. These credit card companies will then raise the rates according to the report, with little to no notice to the borrower, resulting in higher monthly bills that go to collections if they are not paid.
It is always the best idea that if you do not need to go into debt to purchase something; don't. If you don't really need it, don't buy it. We never know what the economy is going to do next and the best way to be prepared is to stay out of debt.