It is certainly true that debt tends to accumulate more quickly than most individuals realize. For instance, it could seem impossible to get out of debt if you have a high-interest student loan or credit card debt.
According to a survey by Home Credit India, two out of three Indians are receptive to taking loans. This emphasizes the importance of a robust debt management strategy to settle debts while maintaining sound financial health.
Contrary to a 'one for all' solution, debt management combines a variety of methods and techniques to efficiently pay off outstanding debts. The ideal plan of action, however, is specific to each person's situation and level of debt, successfully navigating a way out of heavy debt and providing peace of mind in exchange.
The following are top techniques for managing debt effectively:
Build a budget: The key to successfully paying off all of the debt is to stick to a budget. A budget will provide an individual insight into their earnings versus their expenses, allowing successful future planning. When fixed expenses are deducted from income, one tends to gain a better understanding of their free cash flow, allowing them to save more.
After gaining an understanding of these savings, it will become simple to identify areas where expenses can be reduced, deciding on a course of action to repay the outstanding debts.
Adopt debt avalanche strategy: After locating the additional funds to pay off the debts, the next step is to choose how to put them to best use. The debt avalanche method calls for making minimum payments on all other debts while paying off the loan with the highest interest rate first.
After paying off the loan with the highest interest rate, the following step is to transfer to the account with the second-highest interest rate. By doing so, debts will be paid off more quickly, and overall interest costs will be reduced.
Choose debt consolidation: When it comes to high-interest debt, debt consolidation could be the right strategy to adopt. This approach entails acquiring a personal loan and repaying other debts in order to end up with only one loan to manage.
Furthermore, with strong credit, one might obtain a debt consolidation loan with a cheaper interest rate than other outstanding loans. As a result, those with big debts will be able to reduce their total debt and restructure it in order to settle it off faster and save money in the long term.
Hemant Sood is the Founder of Findoc