Tips To Manage Your Debt

Managing your debt is a key element for your financial well-being. Security of your  financial future rest on how well you are able to manage your loans and debt. Easy availability of finance and peer pressure can force you to live a life which is beyond your means. The life at this end may look easy and comfortable till you do not get burdened with those heavy debt which was never within your means. The story is of Prasoon, a young professional working with a telecom company. Graduated from one of the top management colleges and high in aspirations, he did good job hoping in his early days of career. Credit was an easy option for him with banks and institutions  vying a share in  his high income. And so he couldn’t resist himself and  got accustomed to living his life on borrowing, very early in life.

The going got easy as he was single, no dependent and the only thing he has to care is himself. Parents were well settled in their hometown and he was enjoying his life in EMIs not much bothered about saving for tomorrow. But soon bad luck struck him. He lost his job due to company closing the operations. He tried hard but was not able to find a job for months. By this time CIBIL has come in existence. He failed in his EMIs repayment and  was in huge debt soon.  He finally took the help of a debt management company and settled his high interest loans with help from his parents. Although he got a job after 10 months but in this settlement his father has to withdraw part of his retirement funds.

Many of us fall in the same situation when our finances are mismanaged. Rising needs and change in priorities makes it difficult to resist our temptations. Although a proactive approach can save us from ringing the alarm bells, not everyone has the way to move around.

Following are some strategies which you should consider while managing your finances. However, any of these options will  depend on the soundness of your debt position and should be followed only after a through analysis

1. Curtail High Debt

Credit cards, personal loan are the costliest loan but far easy to avail and hence has contributed to most of the debt problems. It’s wiser to avoid these or utilize when you can repay without penalizing yourself. However, if your unawareness has lead to a debt trap then pay off such high loans by borrowing cheaper loans. But do make sure the loan is reduced by amount and not by extending repayment period.

2.  Work on Your Expenses

There are many expenses which relates to our lifestyle more than necessity. Movies, travelling, luxury buying, frequent parties etc. may form a major share of your monthly budget. Not being fixed, many of these  you would have avoid monitoring. But when in financial problems, still hanging on with these expenses is the biggest mistake. Reduce these when in debt and utilize the savings to repay your heavy loans.

3. Use Debit Cards

With highest interest rates, credit cards contribute maximum in increasing the debt of individuals. Most of the time you end up spending beyond your means. Contrary to this debit cards helps you in spending to your earning limits. Even banks have started coming up with exciting features on debit cards which can be a good source of inculcating wiser spending habits.

4. Utilize Savings

You have savings earmarked for some of your goals but avoid repaying debt due to fear of not reaching the destination. The situation can be tricky as the savings keep on increasing so do the debt. When it reaches the alarming stage you utilize the same accumulated savings to pay off much higher debt then before and jeopardize the future. If you have savings, prioritize your debt pay off.

5.  Secure Borrowing

Money borrowed from relatives or friends are helpful as, in most cases, you avoid paying any interest and the time horizon is there in your hands. You can also have the flexibility in repaying which help you in managing difficult times and so borrowing from them can be  a good source for reducing your debt.

6. Take Counseling

Disha Counselling, Credit Vidya are some of the organizations which have been providing free credit counseling to families who have fallen into a debt trap. The counseling sessions helps in analyzing the ways and means to improve your financial situation. Also, Credit Vidya has various level of services based on the level of assistance you may require.You can consider talking to such organizations if you are not able to find out solutions for your debt problems.

7.  Help from Debt Management Companies

There are some debt management companies market themselves in resolving your debt problems by settling with lender on your behalf. For their services they charge a certain fee. They may promise to help you in improving your credit score. Avail the help only when you are sure that you cannot do it yourself. A counselling may do a good job where they guide you the appropriate strategies. The strategies debt management companies adopt are no different. Also remember that a settled amount is not counted as repayment in your records with CIBIL for 7 years and you can still be denied further loans. So if availing any help from these organizations do your homework on the promises being made.

8.    Check Your Credit Score Periodically

Now with CIBIL and other agencies evaluating credit score of most debtors, you can very well check yours  to know what position you stand today. Check it on a regular basis and if needed, strategize to improve it.It’s always a prudent strategy to improve your spending habits. A financial planning approach in managing your finances helps not only in analyzing your debt situation but also drives you to take appropriate actions at right time.

Do you check regularly your financial health? Is your borrowing within means? Are you aware about  high or low interest debts ?

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