Being in debt is stressful, any day. Taking more debts to pay off previous debts makes it even difficult to escape the vicious debt cycle. If you are burdened with debts, it’s not just you. *Nearly 68% of us have some sort of debts, loans, or credit burden!
In most cases, debts result from untimely borrowing, noncommitted expenses, and wrong investment choices. On the whole, improper financial planning plays the culprit.
Factors like commitment, planning, and funding are essential to come out of the debt cycle. Read through this ArthaYantra post to come up with a plan that includes simple yet practical steps towards paying off debts.
1. Come Up With Alternative Income Sources
Look for more income sources to meet your money needs, but not through loans. Do not attempt to borrow any more money to fund lifestyle.
If you can afford time and energy, pick up a part-time job, earn some extra cash to meet the requirement. You may also ask other capable family members to earn a little extra through part-time jobs. Use this extra income towards living and clearing your debts.
2. Evaluate Your Spending Choices, Stick To The budget
Debts consistently make us fall short every month, leading to borrowing. *Around 58% people find it difficult to meet monthly expenses on time and 70% either don’t plan and budget or cannot stick to the planned budget.
So, it becomes necessary to budget out and cut down on spending. Evaluate routine habits to understand pitfalls. It makes sense to keep an eye on daily expenses and go for worthy purchases. Spend only on essentials and basics required for survival. In simple, measure and track your income vs expenses figures. Curb expenses with reasoning.
3. Change Your Lifestyle to Fit In Current Situation
Have a thorough understanding of your current phase of life and manage your finances accordingly. Continuing your bachelor lifestyle doesn’t work if you are married or set for family expansion. After all, you cannot play with the security of your dependents.
Ditching your unwanted expensive habits, which stand between you and your financial goals, help. Such habits even add to your debts or make you disable in paying off. Your focus should solely be on clearing current debts. Block your maxed out credit cards. No signing up for new credit cards, no financing for furniture, nothing for which you do not have cash to pay.
Also, consider regular habits like a daily latte, restaurant lunches during work hours, or fast food, which burns your pocket. Your plan of attack should begin with eliminating unnecessary money behaviors. Try replacing them with less expensive measures, if some of them are unavoidable.
4. Organize Debts and Pay More Than Minimum
Develop a game plan to quickly clear debts by organizing them. Irrespective of the interest rates, list out your debts from smallest to largest. Start with clearing out the smallest ones first, within a time frame, by paying some, every month. Sticking to a plan makes it easy to get out of debts.
Make more than minimum monthly payments to pay off debts sooner and lessen your interest burden. *Nearly, 50% of us prefer to pay out minimum amount credit balance. This doesn’t help as you end up paying a high-interest amount and even slowing the payoff process.
Remember to start with paying off the bad debts first. Bad debts are those incurred to make purchases that quickly lose their value and has no potential to generate income. They usually come with the high-interest rates. Example credit card loans. Good debts are those with low-interest rates and with a potential to generate income over time. For example, with a student loan, your education increases your value as an employee and amplifies your worth.
5. Get In A Complete Financial Plan to Avoid Future Debts
Create a complete financial plan after considering your current status of income, expenses, debts and assets. Make right investment choices to avoid any chance of debts in the future. Do not pump in money into bad investments.
To conclude, financial discipline and good planning are essential for enjoying debt-free life. Simultaneously, planning for other money needs help avoid possible future debts.
Approach an expert for an end-to-end solution to build and analyze your current financial state, besides measuring progress towards future goals! Online fiduciary-like ArthaYantra offers holistic advice and helps create a personalized financial plan. Get it today!
*Financial Wellness Survey by ArthaYantra