Before the year 2019 ends, you may want to re-think your debt management strategies. Even if you own little debt, you will have to devise a strategy to manage it. On the other hand, if you have a larger debt, you have to put an extra effort into repaying what you owe. Let’s explore some ways through which you can manage debt efficiently in 2020:
Want to know more about Mutual Funds? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial product.
Debt control is the process of managing your existing debts by incorporating a strategy. When people are burdened with debt they often consider maintaining a budget of their expenses and managing debt efficiently using debt management plans.
These plans allow people to eliminate debts by following a debt-repayment structure. These plans work best for unsecured debts like credit card debt, payday loans or bank overdrafts and personal loans. Debt management plans usually exclude secured debt like mortgages or car loans etc.
Debt management is important and you can use a debt repayment strategy if you are overburdened with debt or if your debt to income ratio is more than 40%.
If you do not repay your debt or miss your monthly payments, then you may end up hurting your credit score. Even credit card dues or missed loan EMIs may decrease your ability to take new loans in the future. A debt management plan comes handy in such scenarios.
If you have a manageable debt them you may not need a debt repayment plan. But if your debt is spread across several banks or credit cards then you may use the below-listed debt repayment plans. However, while implementing a debt repayment plan you also need to stay on a budget and spend only on necessary expenses and save money whenever possible.
This is a debt reduction strategy using which you are supposed to pay off your smallest debt first and then the next big debt and so on. Once you eliminate your smaller debts, you can gain momentum towards paying your larger debts.
Once the small debt is paid, you can roll your money to pay off the next debt. Here is a debt reduction strategy using the snowball method:
See Also: Taxation of Debt Funds
This is another method using which you can be debt-free. The avalanche method is the cheapest and the most logical route to becoming debt-free. This method helps you pay less interest over the course of your debt repayment. With debt avalanche, you can pay as much as possible towards your highest-interest debt while contributing payments to the other debts as well. This process continues until you are debt-free. The main benefit of using this method is people end up saving more money which would otherwise be paid as interest on loans.
Debt consolidation is a popular method of accumulating your long-standing debts under a single loan at a lower interest rate. This strategy is mainly used to consolidate credit card debts. You may also consolidate other debts under this strategy. It makes debt repayment more manageable and convenient. With debt consolidation, you can club all your debt under a new loan, and pay an amount monthly towards a single loan. This way you can easily pay all your debt within 5-7 years. This strategy is useful for people whose debt is spread across multiple credit cards or payday loans.
See Also: Invest In Short Term Debt Funds
Though this method is not recommended, you may use it only if you are burdened with enormous debt. This strategy is used to negotiate the interest rate or terms of your existing loan with your lender or bank. Sometimes, individuals also negotiate the loan amount.
Consider the two scenarios that emerge while using the debt handling method:
See Also: What Are Bad Debts?
It is wise to incorporate a debt management strategy if you are burdened with debt to save yourself from falling into a debt-trap.
You May Also Watch
Keep your Financial Cognizance up to date with IndianMoney App. Download NOW for simple tips & solutions for your financial wellbeing.
Have a complaint against any company? IndianMoney.com's complaint portal Iamcheated.com can help you resolve the issue. Just visit IamCheated.com and lodge your complaint. If you want to post a review on any company you can post it on Indianmoney.com review and complaint portal IamCheated.com.
Be Wise, Get Rich.
This is to inform that Suvision Holdings Pvt Ltd ("IndianMoney.com") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.