The modern world is seeing everyone in debt at some point or the other – be it for personal expenses or professional ones. Not only does the debt repayment compromises future financial needs, but it also mentality drains the individual. So, it’s only natural for you to find ways to get away from the debt trap.
Here in this article, we aim to learn a few ways to break free of debt, and also how to build your wealth after or during the debt period:Make an Attainable Plan:
First and foremost, identify and mark all your debts and their sources – keeping in mind their interest rates, tenure, etc. Following that, make a plan to chip away all the pieces of your debt. You need to do a complete analysis of your finances and think of how you can generate excess cash flow by increasing income and reducing unnecessary expenses. Then, after keeping aside money for daily expenditure, emergencies and if possible, savings, devote the rest of your finances to repaying your debt.
This debt repayment should be made in a planned and structured way – having long and short-term goals. Make sure all your plans are realistic and achievable. You can take help of our certified investment advisors.Stick to the Plan:
Sticking to your plan is a critical part of debt repayment. Often, you would have the thought of paying lesser than amount planned towards your debt. But doing that would only prolong your stipulated and predetermined repayment term. In fact, it may even ruin your repayment structure!Protect against adverse effects:
Life is uncertain. In most cases, any unforeseen event like an accident, disability, death, critical ailment may demand huge expenses which may wipe out savings, accumulated wealth meant for other future needs or create massive debt. A situation like this may push you into deep financial crisis. For this reason, protecting your lives, health and assets through Insurance are an essential component of any financial plan/debt management plan.Think About Consequences:
Prolonged debt can bring in dire consequences. If you do not understand the adverse effects, you run the mistake of repeating the same error. On the negative side, you may not be able to meet up your future financial goals/needs on time or compromise the goal to a more significant extent. On the positive side (If you are debt-free), you can live peacefully. Living in peace has transformative power!Curb all your Impulses:
Curbing your impulse is one of the most critical aspects of a valid debt management plan. Not only does it ensure that your finances do not divert from your debt management plan and wealth creation, but also saves you from getting into deeper financial trouble. One of the most common impulse expenditure sources is the credit card. Easy credit options not only allow you to spend money impulsively but it also makes you incredibly dependent on it.
So, ensure that you stay away from incurring any expenses on your credit card. You can freeze your credit cards limit (yes, it’s a way, and yes it works), locking them up or even cancelling your credit card. A person who pays through cash spend less and thinks many times before any significant expense.Prioritise the payment of different debts:
Often some debts have higher interest rates as compared to others. So, always prioritise paying off the liability of the higher interest rate first to save significant interest. Typically unsecured debt like a Credit card outstanding, the personal loan, private loans comes with higher interest rates.
If you have taken some small loans, then those can be tackled before moving on to higher scale loans.Do not miss any payment instalment:
Never miss any instalment date of your repayment plan. Even a day or two will attract fees and penalty. Move over, and it hits hard on your credit score as well.
Always ensure that you pay the complete balance of your credit card bill per month as compared to just paying the minimum balance amount. Credit cards typically charge 36 -52% p.a. on revolving credit. If you are unable to pay in full, convert them into EMI to avoid exorbitant charges. Do not use credit card till you finish EMI. Try making additional payments along with EMI's.Do not Borrow to settle a loan:
Often, people, take higher loans to pay off a credit card, personal loan liability and then re-start squandering lavishly with the new-fangled credit limit. You end up creating a cycle of debt which is very difficult to get out off. Debt-trap will ruin you completely.Discover the cause and actions:
One of the most important ways to get out of debt permanently is to understand how you got that point of debt in the first place. Understanding that will allow you to make notes of everything and make the necessary changes to avoid the pitfalls, which may take you to one step closer to a debt-free future.Getting the specifics right:
Tackling your debts is a sort of art and science. There are various ways to go about it – you could go for debt consolidation or pay each one of the debts one by one separately or even pay for a combination of a few of your debts.
Another way to go about this would be to negotiate with your lender to cut down the interest rate offered on your loans or to extend the tenure of your loan repayment. Another way would be to divert all your cash flow going towards low yielding investments into debt repayment.Increase your cash flow:
Look out ways and means to increase your income and reduce your expenses. Avoiding impulsive purchases and keeping a close watch on discretionary spends will do magic.