Sunday, 29 November, 2020

Debt »Causes, Consequences & Regulatory Options

More and more people are in debt – statistics prove that. Debt can become a real burden and make life really difficult. The causes and causes of indebtedness are quite different: illness, divorce, separation or unemployment can lead people into desperate situations and into the debt trap. Visit for a summary

In rare cases, one’s own misconduct is the cause of over-indebtedness: The individual companies and mail-order companies attract with a variety of offers and with the option of a later invoice settlement or installment payment. But when spending goes well beyond your own, debt is just a matter of time.

When debts have emerged, it is important to have a well-planned course of action. The debt counseling is competent persons with help and advice. They help the debtor to get an overview of the entire financial situation and set up a plan to pay off the liabilities incurred step by step. Here we show you what debts actually are, what consequences they have and what options are available from the debt trap.

What are debts – a definition of terms

What are debts - a definition of terms

Liabilities to third parties are referred to as liabilities. Once a person has repayment obligations to a creditor, there are debts. However, debts do not always have to be caused by fate or self-inflicted debts: it is also possible to inherit the debts of other persons.

Furthermore, in some cases it may be necessary to first generate debts in order to be able to enjoy certain advantages in the future: in the rarest of cases, one’s own private fortune suffices to acquire a home. Often a loan is necessary to buy the property. The house or apartment is paid off over many years and only after this repayment period, there is again a debt free.

Even those who want to start their own business often have to take out a start-up loan in order to be able to make certain investments before the start of operations.

Debt – at a glance:

  • Repayment obligations to third parties are referred to as debt
  • Debts are generally not worrying as long as there is no over-indebtedness.
  • If a person is over-indebted, she no longer manages to repay the liabilities incurred with her own private assets and personal income.
  • As debts become more frequent and a person becomes insolvent, debt settlement must be arranged with individual creditors.

Over-indebtedness and indebtedness – what is the difference?

Over-indebtedness and indebtedness - what is the difference?

If debts add up to a certain amount and several credit liabilities come together that no longer absorb their monthly salary, but are covered by the assets and assets of the person concerned, the financial expert speaks of debt.

A characteristic example of this is a real estate loan: The total loan amount exceeds the monthly income, but the monthly installments can be easily borne by the borrower and the loan can be replaced in an emergency by the value of the property.

With a debt payment obligations can be duly repaid monthly. The financing of their own living expenses is not endangered in this case.

If your own payment liabilities can not be met for at least three months without jeopardizing the basic cost of living, such as rent or electricity, you are over-indebted. If there is no additional source of revenue, it is urgent to seek a debt counseling service to develop a concrete approach to debt reduction.

Over-indebtedness is often a stealthy process and, in many cases, associated with a severe life incision or strokes of fate. A divorce, for example, can lead to the fact that the shared apartment can not be paid by a partner alone. If there is an over-indebtedness, the monthly payment obligations can no longer be duly repaid.

The Federal Statistical Office cites the following reasons for over-indebtedness:

  • Divorce and separation
  • Death of the (spouse) partner
  • unemployment
  • Uneconomic housekeeping
  • Failed independence
  • Diseases
  • accidents
  • addictions
  • longer-term low monthly income.

Before it comes to over-indebtedness, it is important to react quickly and initiate debt settlement measures. If dunning and enforcement proceedings are already in full swing, the situation can get more and more complicated.

Debts and their consequences – these consequences must be expected

Debts and their consequences - these consequences must be expected

Debt can have very unpleasant consequences for the debtor. Here are the possible consequences at a glance:

  • Longer-term high liabilities lead to over-indebtedness
  • Reminder with additional reminder fees
  • Writing Collection Offices: This entails further high costs and default interest.
  • Negative entry at credit bureau and reduction of own creditworthiness (credit rating)
  • Judicial Reminder: Reminder
  • Enforcement notice, insofar as the debtor does not object to the order for payment.
  • Foreclosure measures such as account and pay attachments
  • Loss of your own living space in the case of increased rental debt: This can also be connected with an eviction action.
  • Invitation to submit a state insurance (asset information).
  • Need to open a private insolvency procedure.

Debt can be a threat to your own existence, which is why it is very important to act quickly and develop a debt settlement plan.

Debt trap – what is it?

Debt trap - what is it?

There are liabilities and payment obligations where there is an increased risk of accumulating debts: in this context, we speak of the debt trap. The debt trap is primarily a matter of long-term payment obligations: the debtor’s economic and personal situation can change quickly, and as a result, certain payments may not be properly paid.

A big debt trap for teens are expensive mobile phone contracts. Here is usually not the actual tariff the problem, but the many attractive, but clearly overpriced additional options and the possibility of financing very expensive smartphones.

Another debt trap is the possibility of claiming a credit line. Those who regularly cover their account must expect high interest rates. Funding via overdraft is definitely not recommended, as it is not only very expensive, but also runs the risk of getting out of the red.

Furthermore, existing debts should not be settled by new debts: this means that a loan should not be taken up to pay existing debts. This can become a real debt trap, because new debt repayment obligations make the debt problem even worse.

The different types of debts

The different types of debts

Basically, debt can be divided into two different categories:

1. Primary debt:

These liabilities are particularly important and urgent as they concern existential areas of life. This type of debt can affect a person both psychologically and physically. A typical example of primary debt is rental debt. If rent arrears continue to rise and liabilities can not be settled, it can even lead to homelessness in the worst case scenario. Tax liabilities and unpaid health insurance contributions also fall into this category

2. Secondary debt:

These types of debts do not jeopardize their own existence directly because they do not relate to areas that are essential for life.

These include, for example, the following types of debts:

  • private debts
  • consumer debt
  • study debt
  • GEZ debt
  • Telecommunications debts.

Even though these debts do not directly affect their existence, they can have serious consequences. Therefore, it is important that secondary debt does not accumulate.

Effective Help for the Debtor – What to Do with Debt?

Effective Help for the Debtor - What to Do with Debt?

Once the state of over-indebtedness has occurred, order must be brought into one’s own finances:

  • Which debts have to be settled most urgently? (Priority distribution).
  • The individual creditors must be contacted in order to arrange a payment in installments, a deferral or even a debt relief.
  • It is urgent to go to a debt counseling center.

Employees are experts in debt regulation and know what to do on a case-by-case basis. The goal is to become solvent again and to have a debt-free future.

The debt counseling center also helps the debtor in the future not to fall into the debt trap again and to keep track of their own finances. Debt counseling is available in the cities on site or online: These can also be used anonymously.

Avoiding debts – at a glance:

  1. Inform creditors about insolvency before turning to a collection agency.
  2. Do not make another debt.
  3. Rent and electricity always immediately and pay first.
  4. Contacting a debt counseling center for an out-of-court settlement.

Statute of limitation of debts

After regulation of the civil law book (BGB) debts expire usually after a period of three years. The statute of limitations begins on 31 December of the year in which the claim for claim arose. Three years after the debt has been incurred, on December 31st, the statute of limitation comes into effect. It is different if there is already an enforcement order: Since this is a legally valid title, this will barred according to the Civil Code only after 30 years.

Debt free – tips for a future without debt

Debt free - tips for a future without debt

It is very important to keep track of your own finances so as not to get into over-indebtedness. Here are some tips:

Household book lead:
It’s a very helpful way to keep track of your spending and revenue. Household books can be found in every stationery business and in the digital age even as an app for the smartphone.

Lower costs and expenses:
Who has the overview of his entire finances, also finds savings. Before buying, it should therefore always be checked whether one or the other item of clothing is really necessary. In addition to new purchases, the car insurance and the electricity supplier should be checked. Not infrequently results in a cheaper offer.

Increase the personal income:
For example, those who only have a part-time job can ask the employer to increase their working hours. If you work full-time, you can also do a small part-time job. Possible claims such as housing benefit or BAföG should also be examined in this context.

Avoid credit cards:
Credit cards are very attractive, but carry a very high risk. With a credit card, it can easily happen that more money is spent than is actually available on a monthly basis. Those who only pay with the card tend to lose track of their own financial situation. Attention: Bankinstitut can charge very high interest rates for the settlement of the credit card debt!

Beware of installment purchases:
Small, manageable monthly rates can quickly distract from the actual purchase price. Here, the danger is quite high to slip over the monthly payment obligations into over-indebtedness.

Claim loan only in an emergency:
The checking account should only be covered in the extreme emergency. Those who do not get out of the red for a long time should think about retraining with a cheap personal loan.

Take care when closing the loan:
Very many banks and banks attract with cheap consumer loans. In this context, the total costs incurred for a loan must always be taken into account. It is best to calculate the costs well in advance, read the fine print and compare it with the offers of other credit providers.

Avoid buying spree:
Especially with online shopping, the monthly limit should not be lost sight of. A tip: It is best to pay with cash. In fact, only what you really want to spend is spent. Also avoid frustration purchases. You can do so many beautiful things that hardly cost money.

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