In today’s scenario taking a loan be it a personal loan for marriage or going on a vacation or a home loan to buy a home or a piece of land, car loan etc. a person is almost always in some form of debt or another which is a burden on the monthly income of a person. Though the loan was taken out of necessity each month a person will need to think about the loan and will not have enough to save for the future. This is the reason why it is best to pay off any debt as early as possible.
Tips to get out of debt fast
1. Understand your salary and debt
Understand your earnings and spending. Know how much you make, understand all the deductions, the reasons behind it, track where you spend the money and how much debt you have. This will give you an understanding of your income and expense.
2. Pay off your highest interest loan first
It is best to pay off the debt with highest interest rate like credit card bills or personal loans first as they are the ones that will eat at your monthly income the most. By doing so your interest rate down the line will reduce. But just trying to pay off the bigger loan doesn’t mean you need to stop paying for other loans. If that happens they will accrue and become a bigger problem which will also directly impact your credit score.
3. Use bonus money to close loans
When you get a big bonus do not splurge it but try and pay off your loans. Many banks allow part prepayment without any penalties pay off such loans with the bonus money to reduce the overall debt burden
4. Increase EMI amount with increase in salary
When your salary increases each year, increase the EMI you pay each month as the additional money will pay dividends down the line, helping to reduce the tenure of the loan which in turn reduces the interest paid.
5. Convert credit card bills to EMI
If you are not able to pay your credit card bill the following month or if your debt has started to increase too much it is best to convert the balance to an EMI. Many card issuers do this to help customers pay off their debt to 6 to 12-month EMIs.
6. Debt consolidation
If you have a lot of debt and managing each one of them becomes difficult go for a debt consolidation loan. This is where you can take a single loan to pay off all the other dues. This method could help reduce the cost of debt if the loan interest is lesser than your other loans. For example, you might have a credit card debt for Rs. 50,000 for which the interest rate will be 36% to 40% per year. By taking a debt consolidation loan which starts from 12% you will save a lot of money.
7. Pay off debt with existing savings
If you already have some savings use it to pay of your debt. Debt if not manageable will create havoc in a person’s life. By paying off debt you will save yourself a lot of headache. If you have savings that could help pay your debts use it, as savings can be earned again, but debt unpaid will only grow.