During times of financial difficulty, loans can come as a temporary relief by providing you with funds to cater to your need. However, loans carry interest and other costs and, if not managed wisely, can lead to debt accumulation. This will not only be a financial burden but can also damage your credit. To avoid a situation like this, it is crucial to pay off your EMIs on time, avoid late payment penalties and minimise additional interest charges. If you are already under debt and looking for ways to manage repayment more efficiently, here are some tips for you.
- Assess Your Debt
The first step in getting out of debt is understanding how much you owe. Review your current financial situation and make a list of all your debts, their interest rates, and expected monthly payments that need to be made. This will help you organise your finances better. You can also check your latest credit report on Paisabazaar Website and Mobile App to get a clear picture of all your financial obligations and how they would be affecting your credit profile.
- Create a Budget
Preparing a budget and reducing your expenses is another crucial step you need to take while deciding to become debt-free. You can begin by tallying all your sources of income and preparing a list of necessary monthly expenses. Your monthly budget can include all unavoidable spends, like rent and utility bills, along with other expenses, such as entertainment, dining, etc. While creating a budget, you can identify the areas where you can cut back on while utilising that money towards paying off your debts. This will not only help you minimise unnecessary spending but also give you insights into how much money you can allocate towards debt repayment.
- Prioritise Your Debt Repayments
After listing all your debts, you can decide which ones to tackle first depending on your current income, budget and monthly repayment capacity. Besides making the necessary minimum monthly payments, you can prioritise your debts using popular debt repayment methods, such as the debt snowball and debt avalanche methods. Under the debt snowball strategy, you focus on paying off smaller debts first to reduce the number of loan accounts you have to manage in the long run. On the other hand, the debt avalanche method prioritises paying off high-interest debts over others to avoid accruing higher charges, which can make it more difficult to get out of debt.
- Consolidate Your Debts
If you have multiple loans and credit card debts, consolidating some of it will make the repayment easier and reduce the financial burden as well. You can take a new personal loan to consolidate your credit card debts or to transfer a high-interest loan for a lower interest rate. Even a small difference in the interest rate will lead to significant savings.
- Look for Ways to Increase Your Income
In addition to creating a budget and tracking your loan accounts, finding ways to supplement your primary income, if possible, can also come in handy in paying off your debts quickly. This may involve taking up a part-time job or freelancing for some time to arrange some extra funds that can be utilised towards accelerating the debt repayments.
- Negotiate With Lenders
If you are struggling to make the minimum monthly payments or find it difficult to keep up with the current lending conditions, you can reach out to the lenders and try negotiating for better terms on your debts. This negotiation may involve requesting a lower interest rate, waiving off any late payment charges, or setting up a more manageable repayment plan with smaller monthly instalments. The solution will vary depending on the customer’s credit profile, relationship with the bank and several other internal policies of the lender.
- Seek Professional Help
You can also consult a financial advisor, if needed, to help you to become debt-free. They can provide professional guidance and assist you in creating an effective debt repayment plan tailored to your specific financial situation. A financial advisor can also help you determine if options, such as debt consolidation and balance transfer, are suitable for you or if there are other efficient strategies to manage your debts.
Paying off your debts is not something that can be done overnight. However, it is still possible to achieve this goal by adopting a disciplined approach towards your finances and staying committed to your debt repayment plan, even when faced with setbacks or unforeseen expenditures. By following the simple steps discussed above and developing healthy financial habits, you can take control of your finances and work towards an efficient debt plan, if not a completely debt-free future.