Go Debt-Free!by Mymoney Mantra FinTech (Financial Technology)
Being free of debt is great. It is an ideal situation, but is it possible in today’s scenario to be free of debt? Yes, it is difficult, but not entirely impossible. We shall discuss ways by which you can be free of debt.
A Brief Insight
In the past, people did not use to take loans. They preferred to save and buy things for their comfort only when they could afford it. The opening up of the economy has changed the scenario. People today have greater access to loans. Banks are also quite liberal while issuing Credit Cards and granting loans. An advantage of opening up of the economy is that a person can take loans and enjoy the comfort while repaying the loans on a monthly basis. Although loans and credit can be helpful when you are in need of immediate funds, having easy access to loans can also make you borrow more than what you need. This may lead you to enter a debt trap gradually if you are unable to repay your loan within the stipulated time.
What is a Debt Trap?
A debt trap refers to a situation where you are not in a position to pay your EMIs (Equated Monthly Instalments) on time. You keep delaying the repayment while incurring fresh debts at the same time. It affects your creditworthiness in the market. You find that your plummeting credit score makes it difficult for you to Apply for a Personal Loan and other forms of credit. The sooner you get out of the debt trap, the better it is for you.
How Do You Get Out of the Debt Trap?
Debt trap can leave a deep mark on your credit rating. However, the following steps can help you get out of the debt trap:
1. Evaluate your debt position:
Know how much debt you have. Understand the nature of your obligations. Make a list of all the money you owe to various people as it helps you evaluate your position and analyse your debt. Make a note of the EMI amounts and the rates of interest.
Investigating the nature of your obligations allows you to set up priorities for repayment. List your income and mandatory payments like taxes, rent, insurance, and so on. Find out your debt to income ratio. A ratio of 36% or below is ideal. Anything more than that necessitates prompt remedial measures. It enables you to plan your repayment.
2. Change your spending behaviour:
Analyse why you fell into the debt trap in the first place. You will find that you were buying things that you could not afford. Secondly, you will also realise that you were buying things that were entirely unnecessary as well. You have to change your spending behaviour to get out of the debt trap.
3. Earn enough to bring the debt to income ratio under control:
Earning more money is one way of getting out of the obligations. You are in a position where you are spending more than your income. It calls for a rectification. There are three ways of doing it:
· Work harder – Take up a part-time job and work harder to earn more.
· Work smarter – Try to move up in your organisation and make more. Alternatively, try for a higher paying job.
· Sell your investments and assets – You can resort to this alternative if you have urgent debts to repay. It is a temporary solution.
4. Try balance transfers
Banks allow you to transfer your balances from one card to another. Many banks offer this facility in the form of Home Loan Balance Transfer, Personal Loan Balance Transfer, and so forth. You save a significant amount of money in the bargain. However, consider the pros and cons of opting for this facility before availing it.
5. Debt consolidation can work:
It is better to consolidate all your debts into one to enable easy repayment. If you have a decent credit score, you can always apply for a Personal Loan and use that money to consolidate all your Credit Card outstanding. In this way, you will now have to worry about one account alone. Secondly, Personal Loans attract lower rates of interest as compared to Credit Cards. They offer you extended terms of repayment.
We have seen five steps that can help you get out of a debt trap. Following these steps can make you debt-free.
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.
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Created on Apr 23rd 2018 02:32. Viewed 104 times.