Debt helps you get many things, be it credit cards which helps you buy electronic gadgets, consumer goods, clothes or personal loans which help you in a financial emergency. The more credit you use, the quicker you will be pulled into a debt trap.
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6 Steps to Reduce Your Debt Quickly
You need a steady flow of income to keep yourself from falling into a debt trap. Else, you might end up taking loans to settle loans. Therefore, it is wise to dispose off a loan as soon as possible. But, what can you do if you don’t have a steady flow of income? Even if you have, what if you cannot settle your debts? In such cases, you need to manage your debts. You can do that by:
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List out all outstanding loans and credit card bills over the years. Analyse them based on the interest rates and tenure left. Now, make a plan of repaying your high-cost debts at the earliest.
Keep in mind the interest rates and tax deductions of each loan and decide which one is best paid off first. You may want to repay your credit card with a higher interest rate first, followed by your home loan which has a comparatively lesser rate of interest and has tax benefits as well.
2. Plan a realistic budget:
Planning your budget is most important. You should track and have control over all your expenses. Try to reduce unnecessary expenses on entertainment, hotels, etc. for a fixed period of time. This will help you curb unnecessary expenses and direct the money saved towards repaying your debts, within the requisite deadlines.
There’s no gain without pain. See if you can earn passive income by taking up a second job. This will help you pay debts faster.
What’s better than paying off your loans when you have the money? If you can’t pay off the loan in a single shot, make periodical pre-payments. This will reduce the interest burden.
SEE ALSO: How to use a Credit Card Wisely?
4. Credit card usage:
Stop using your credit card for a few days. Your interest payment increases with every credit card transaction you make, while you are still in debt. Therefore, refrain from using a credit card in avoidable situations.
Move from high interest loans like a personal loan to a low interest loan like a loan against FD (secured loan). Even a small decrease in interest rates, makes a huge impact on your interest payments in the long-run. Therefore, transfer your debts like personal loans and credit card dues to a bank which charges lower interest, using the balance transfer option. You may also consolidate all your loans into a single debt.
Increase your EMIs with every increase in income. In this way, you will be regularly pre-paying your loans or debts and dispose them well before the tenure. These steps are simple yet effective. Make the most of them. Be Wise, Get Rich.
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