Even though I am debt free, I know that being in debt can be a scary thing. The reason that it is scary to me is because it seems to be cyclical and have potential for getting significantly worse. Once you are in debt, you never have full freedom with your money and you always run the risk of defaulting on your loans if your lose your primary source of income. As I mentioned just recently, financing a car can be a dangerous thing. With the economy the way that it is, you never know if your job is 100% secure. If you were to lose your job next month, would you be able to pay your monthly payments on all of the loans that you have?
Some Try to Protect Themselves with Insurance
People who are in debt often go to the extreme because they don’t have a better option. They often think that purchasing payment protection insurance is a great idea. Instead of running the risk of having to miss a payment, a little extra money could be worth the security of having your payments covered if you lose your job. Before you are quick to judge this mentality, think of what it would be like if you were in their shoes. If you owe thousands of dollars toward your debt each month, you would want security too. The only problem is that payment protection insurance can take advantage of desperate people. They may not read the fine print and later be forced to file PPI claims in order to get back what they have already lost.
If you are considering paying an extra fee or having another monthly payment just to protect yourself, you should think of what you can do by yourself. If you can commit to saving the money that you would otherwise pay towards some insurance plan, you can easily save up enough money for a legitimate emergency fund. Having this emergency fund is the first step to getting out of the downward spiral that debt can cause. Not only will it protect you from any unexpected expenses, but will teach you how to save your money. This small lesson can go a long ways toward improving your financial situation.