The Buyt Desk
Borrowing money from banks or other financial institutions is common nowadays. Getting the loan is possible with just a few clicks on a smartphone and fast online verification processes. Borrowing multiple loans result in the collection of debt over time. Sometimes, there is a need to get a high-cost debt like a credit card or from the market having high-interest rates. This could result in a debt trap (a situation that forces a person to take new loans and has more debt than they can repay). You can do multiple things to prevent the debt completely or at least pay off most of that in a year or less than that.
You can cut down your debt by opting for the following tips –
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Create a budget
This is the best thing you can do to get out of your debt. Track your expenses i.e. how much you are earning and investing, and where you are spending the money, it is good to develop a budget. Learning more about income and monitoring expenses can greatly help in reducing or preventing unwanted spending. To accurately calculate the money you owe, note down your debts, their balances, minimum payment periods, and interest rates.
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Avoid taking more debt
Focus on paying the debts you currently owe before taking on any new debt. Make sure you don’t add any new debt unless you have some urgent needs. Making unwanted purchases while repaying the current debt will make debt management highly challenging.
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Never miss a bill
When the debts keep accumulating, you will have to pay additional interest on the current interest and late fees. This eventually increases your debt amount even further. To avoid debt accumulation, completely and timely pay your bills. Create a monthly note on the calendar and timely pay the installment on the agreed date.
To ease this payment process, automate your credit card payments and EMIs. Plan these payments shortly after the payment date or for the next day. If you get a monthly paycheck on the 5th of every month, set the date to the 6th of every month. It will help in billing the installment on time even when you forget the due date.
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Check bills for errors
Never forget to check your bills and statements carefully whenever you receive them. Be sure that there are no errors and that the rates are the same with complete accuracy. For any inaccuracy or error such as an increment in the rates without any explanation, contact your lender as soon as possible.
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Concentrate on high-interest debts
Initially, focus on high-interest loans or debts because they are the worst debts. For example, personal loans have 12-20% interest rates, while interest rates on a credit card can go up to 40%. So, pay them in the beginning. It will help in lowering the amount you owe in the long run. Meanwhile, timely keep paying your loans like student loans, mortgages, etc. because they have low-interest rates. You can reduce tax on them.
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Consider the best interest rates during debt consolidation
Debt management becomes easier by getting a debt consolidation loan because you make just one payment to the credit union or bank instead of multiple payments to all your present lenders. Focus on the best interest rates before consolidating your debts because credit unions or banks may provide lower interest rates than the rates you owe on the loans.
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Step up your installment amount
With the increase in your income like annual increment, step up personal loan debts or credit card EMI amount or installments. Do it in the same ratio as an increment on personal loans or more only when it is affordable for you. Repay the debt if you have additional money in hand such as investment income and others.
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Contact your creditors and credit counselors
Know more about your repayment plans by interacting directly with the creditors or companies from which you borrow the money. They will help in setting up a realistic repayment schedule for your budget and decrease monthly payments. If you don’t have any know-how regarding developing debt repayment plans, talk to a credit counselor. But, be aware of the counselors who scam by claiming that they can pay off all debts quickly with just a single low fee.
Conclusion
If you don’t want to fall into a debt trap or reduce a debt burden, follow these tips and learn how to be financially disciplined. Increase your financial understanding and control your desire to splurge on spending.
