5 Effective Tips for Getting Out of Debt on Your Own

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5 Effective Tips for Getting Out of Debt on Your Own

Getting into debt is ridiculously easy, but getting out of it takes time and effort. Consumer credit is all too easy to get these days, and relying on it too much can lead you into a debt trap. You need to think carefully before you apply for personal loans or credit cards, and have a plan in place to help you repay them.

But, what can you do if you already have multiple loans, EMIs and credit cards bills that are getting out of hand? Should you get a debt consolidation loan? Stop using your credit card? Ask someone to help you out? Today, we’re going to show you some simple ways to clear your debt on your own.

How Do People Get into Debt?

Here are the 5 most common reasons why people end up with piles of unpaid debt:

  1. Major Life Changes – Getting married, having kids, moving home and changing jobs can impact your credit management strategy.
  2. No Financial Backup – Lack of an emergency fund can cause unexpected expenses to wipe you out or lead you into debt.
  3. Not Paying Attention – Ignoring or postponing overdue debt and bills won’t get rid of them. They will just keep on adding up!
  4. Spending Too Much – If you barely make ends meet, or spend more money than you earn, credit can pose a major temptation.
  5. Following the Crowd – Trying to keep up with society and peers when you can’t really afford to is very dangerous for your finances.

How to Clear Debt Quickly and By Yourself

If you have gotten into debt, for any of the reasons listed above or others, here’s a 4-step guide to getting out of it on your own:

  • Know Exactly Where You Stand

Before you can make a plan to fix your finances, you need a clear of idea of what they are like. Here’s what to do at this stage:

    • Make a list of all your outstanding debt, including the balance and interest rate on each credit card, loan or overdue bill.
    • Figure out how much you need to pay every month in order to to clear all these overdue amounts in the next three years.
    • Create a monthly budget based on your income and basic expenses, as well as the total you reached in the point above.

5 Effective Tips for Getting Out of Debt on Your Own

  • Select a Debt Strategy That Fits

After you have figured out what you owe and how much interest each debt is costing you, choose the best-fitting strategy for repayment:

    • Call each creditor and negotiate your interest rates, and work on paying  off the highest-interest debt first.
    • Pay off the easiest debts in full, such as those with just 1-2 payments left, to help yourself remain motivated.
    • Prioritise debt with the lowest balance, or start with the highest balance to help bring down your total debt.
    • To reduce pressure from creditors, repay your lowest monthly payments first, except for car/home loans.
  • Decide How to Make Repayments

Now that you have a strategy for debt prioritisation, explore the available sources of money that can help you repay your creditors:

    • Boost your income by working harder, smarter and longer, and use workplace bonuses for debt repayment.
    • Take up a side gig, sell unused items and cut down your expenses to the bare minimum until you’re debt-free.
    • Consider cashing in your life insurance policy or using your savings to make larger debt a little more manageable.
    • Avoid using your credit cards for anything but a real emergency, especially for high-interest cash withdrawals.
  • Consider a Debt Consolidation Loan

Taking a personal loan to pay off your debt might not seem like a great move, but debt consolidation can actually be a tremendous help:

    • Transferring your credit card balances to zero-interest cards can tempt you to use the old ‘paid off’ cards again.
    • Balance transfer cards only give you a limited interest-free window, after which you could be paying high rates.
    • Poor credit scores can make you ineligible for balance transfer cards, but you may still get a debt consolidation loan.
    • A fixed repayment term can help keep you on track with monthly payments, rather than just paying minimum balances.
  • Break Out of the Debt Cycle

You need to make certain changes to your financial behavior and habits, both  while paying off your debt and after becoming debt-free:

    • Monitor and control both incoming and outgoing finances carefully, and make sure you stick to a monthly budget.
    • Create and maintain an emergency savings fund that will tide you through the rough times without relying on credit.
    • Eliminate the temptation to use credit cards, unless you are sure you can pay off the balance in full every month.
    • Live the kind of life you can actually afford, instead of wasting money you don’t have just to impress other people.

Debt management is tough, but it gets easier with practice. Use a personal loan to pay it down now, and then focus on being debt-free for life!

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Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India's first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life's mission to help and educate people on various financial topics, so email him your questions at shiv@moneytap.com