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Providers of debt love salaries because it gives them a dependable source of income. It is the equivalent of taking out a fixed interest investment at huge interest rates.
Companies compete for what is known as your ‘disposable income’, the bit of your salary that is left over after tax has been deducted.
The pitfalls of debt are associated with the ‘repayment mindset’, where borrowers take as much money as they are able to repay, instead of calculating their solvency to determine how much is best to borrow.
The repayment mindset leads to unnecessary interest and charges that could be saved or put towards purchasing.
This quickly leads to insolvency, when the household income can no longer cover the repayments.
Insolvency practitioners can arrange with creditors to repay only as much as the household can afford, or to ‘cancel’ the interest and only repay the amount borrowed.
This will however damage one’s credit rating, causing other creditors to react and making it more difficult to raise new and better finance.
It is advisable to seek help long before your salary becomes overburdened with repayments. The heavier the burden on you salary becomes, the more difficult it will become to move away from insolvency.
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