Effective Ways to Strategically Manage Your Debts
Author : Rahul Agnihotri | Published On : 09 Feb 2024
Over the past few years, the number of people applying for some form of credit has increased significantly. Thanks to the simple eligibility, online KYC, instant disbursal, and digital lending technology, getting a loan or credit has become easier than ever before.
While getting a credit may empower you to fulfil your financial goals and mitigate emergencies, taking multiple credits can become difficult to manage and repay. Also, having multiple debts can affect your financial stability and put you off track from achieving your long-term goals.
This is where debt management comes in. It is a practice to managing and minimising the debts and repaying the dues. If you are struggling to pay off your debts, you need to start planning your finances smartly, and regain control of your finances. Here are a few effective debt management tips you must follow:
Set-up a budget
One of the easiest and most effective things to manage your debts is to create a comprehensive budget. Make a list of all the income sources you have and also put down your monthly expenses. This must include everything from loan EMIs to utility bills.
Now, identify area or expenses that you can completely cut or at least reduce, and allocate that amount towards repaying the debt. Having a well-structured budget and allocating funds for each of your monthly expenses can help you get a clear picture of your financial standing and prioritise your debt-repayment efforts.
Pay your debts on time
A lot of people tend to fall into a debt trap because of late payment of their EMIs or credit card bills. They don’t realise the fact, even if they miss the payment by a single day, they have to pay an interest, which keep accruing. Also, missed payment can have a severe impact on your credit score, which in turn will affect your financial credibility.
Hence, it is paramount that you are aware of the due dates of all your loan EMIs and credit card bills, and you make the payments on time. The best way to avoid late repayment is to automate the process.
You can instruct your bank to reduce a specific amount towards the loan or credit card bill on a specific date of the month. This way you will not miss the payment, and your debts will not spiral.
Opt for debt consolidation
Debt consolidation involves rolling multiple debts into one single loan at a lower interest rate. This can significantly reduce your debt burden and you can manage the repayment. However, when you opt for this option, be careful and ensure that you thoroughly understand the terms and conditions of the new loan.
Build an emergency fund pool
Having a backup financial source in case of an emergency will help you handle the debts better. It is advisable that you set a small portion of your income aside every month and build an emergency fund pool. This will come handy to meet any sudden expenses and also for debt repayment when it becomes difficult to manage with your regular income.
Pay the full outstanding amount
Just as critical it is pay off your dues on time, it is equally important to pay the full due amount, and not just the minimum amount necessary. If your financial situation allows you to repay the debts at once, consider this option.
When you pay only the minimum due amount on your credit card bills, the credit card company will levy an interest on the outstanding balance and it will continue to increase until you repay the full amount. And, it will only further push you down the debt trap. So, prioritise making full payments.
Also, if you have availed a loan, many banks let you foreclose or make partial repayment without any additional foreclosure charges. Take advantage of this option and be debt-free soon.
Clearing debts is not a one-time activity. It happens slowly, and you must stay disciplined and patient through the process. Commit yourself fully to the debt repayment plan, and visualise yourself in a situation where you are debt-free in the future to motivate yourself during the tough times.
By creating a budget, avoiding taking any new debt, and focusing on repaying the debts you can slowly reduce your outstanding amount and eventually become debt free.
Seek professional help
If your debt situation seems too overwhelming for you to handle, it is best to get help from a financial advisor. They can help you formulate an effective debt repayment plan and guide you on how you can improve your financial situation.
Debt management is vital for maintaining your financial credibility and managing your expenses better. Consider the above tips and tackle your debts head-on.