Having debt is a mark of your financial ineptitude. It also tells you how you remain pinned to your liabilities. It does not matter if you are reeling under huge debt or feeling uneasy because of a small loan. The need of the hour is to reconsider your financial strategies so as to get rid of debt and redefine financial freedom.
Instant gratification is a term synonymous with today’s generation. This explains why many of them rely on credit cards to pay off expenses or resort to taking personal loans to get rid of their debt. Being debt free is not difficult only if you are willing to follow some simple steps that will tell you how to best utilize your finances to eliminate unwanted debt.
Irrespective of why you incurred debt in the first place, the following strategies can help you get started.
Don’t pile up your debts
Debt snowballing has doomed the finances of many. If you do not repay your debt on time, the size of the debt increases rapidly in size and intensity. Recurring interest or penalty on the debt will cause the size of the debt to grow manifold over time, thus, highlighting the need to pay off the minimum of debt to prevent escalation of the same.
Start repaying your debts now. Check your liabilities and divide them into short-term and long-term liabilities. Next, categorize them on the basis of size to decide which to repay first. Start paying off your balances so that you may free your funds to relieve yourself of other debts. This way, you will not gradually get rid of the loans but will also feel encouraged to erase your other debts as well.
Check for debt interest rates
Interest rates are rising, which means that it will cost you more now to repay your debts. Alternatively, you may have to choose a longer debt repayment tenure. Either way, you will feel crushed under the avalanche of debt as it dawns on you the realization that you will now have to spend more than what you had planned.
To counter this, make a list of all your debts, starting with the highest interest rate and working your way down. You then prioritise paying off the debt with the highest interest rate first, while making minimum payments on all other debt. This reduces the amount of interest you pay, freeing up more cash to pay down other debt. Deciding to get rid of the high-interest debt will also actuate you to act promptly against lingering debt.
Consolidate your debt
Unless you are clear about what you have and how much you must repay, you will never be able to repay your debt fully. First, check the different kinds of debts you have incurred, for example, credit card debt, home loan, vehicle loan, personal loan, and more.
Considering how it may pain you to get rid of the debts one by one, you may consolidate the debts, seek a new loan to get rid of all the old ones and then repay this one debt on time. This will also free you from different debts at different interest rates and then focus on repaying only one loan sought at one kind of interest rate.
The aforementioned strategies seem easier said than done. One reason for your inability to repay your debt is your incapacity to decide on a budget and then stick to it. The tendency to splurge, which means spending on non-essential items or going beyond your means to buy something unplanned can create unwanted debt. Also, taking loans beyond your means must be avoided to live a debt-free life.
