9 clever tips to help you avoid excessive debt

Flat broke, but piles of unpaid bills in your letterbox? Source: Thinkstock

More than 1.3 million Swiss residents are heavily indebted. Even here, an increasing number of people fall into the so-called debt trap. They risk debt collection, seizure and – in the worst case – personal bankruptcy.

It happens so quickly: one pays a few books online by credit card here, buys a TV under an instalment plan there, and finally gets a new car by taking out a personal loan. But beware! Before you know it, you have more expenses to cover than income on your account.

Some cantons, such as Zurich, report a record number of debt collection proceedings. The Swiss debt counselling service estimates that there are 1.3 million over-indebted people in Switzerland and considers this a "danger to society". For years it has been observed that an increasing number of people incur excessive debts.

It does not have to come to that, though. With our 9 helpful tips you can avoid the debt shock.

  • Get an overview of all your income and expenditure. The most frequent cause of excessive debt is that the persons affected ignore or overlook the fact that their expenditure exceeds their income. Define your monthly fixed expenses: rent, incidental expenses, insurance, cost of living, membership fees, car and fuel costs, etc. In fact, petty expenses such as membership or subscription fees can add up to more than one would think.

    Tip: There are apps that can help you not to lose track of your expenses. Check out this top ten list.
  • Draw up a realistic budget. Aside from your current fixed costs, you should also consider the charges that could accrue in the medium and even the long term. Especially young adults often do not take into account that their cost of living is rather likely to rise in future. Online help can be found on the Forbes website, for instance.
  • Be careful when using credit cards. We recommend that you arrange with your bank to automatically pay the balance via direct debit at the end of each month. Getting into debt on a credit card is very expensive. The interest rates are usually higher than with consumer credits. 
  • Pay cash for a change if possible. This is a tip that may sound rather simplistic, but is very effective. For this, you should withdraw larger amounts from your account on a regular basis and spend this money in a selective manner. This helps to get your expenses under control and keep an overview.
  • Build up reserves. Put aside some money early on to be able to cover expenses that you will sooner or later incur: taxes, dentist's bills, servicing/repairing your car, etc. It is advisable to open up a separate account or a savings account and pay in a fixed amount each month.
  • Loans for durable things only: loans are suited for durable consumer goods that you can benefit from while paying them off; i.e. a car or pieces of furniture, for example. You should avoid taking out a loan to finance products used on a short-term basis, which you then will have to pay off long after using them.
  • Pay back loans quickly. Once the excitement over something new wears off, the monthly instalments quickly become a burden. We generally recommend never to buy anything that you would not be able to save up for over the duration of the loan.
  • Think before spending money. Do you really need the expensive car model with all the gadgets and gizmos or would a cheaper option suffice?  It is sometimes advisable to deny oneself expensive purchases and lead a debt-free life instead.
  • Don't be afraid to ask for help. If you are already knee-deep in debt, do not hesitate to contact the Swiss debt counselling service Schuldnerberatung Schweiz (website in German and French only). It is represented in 37 locations throughout Switzerland.