A Step-by-Step Guide On How to Get Out of Debt

Keeping to the EMI schedule is a good practice – any defaults reflect poorly on your repayment record and credit score. However, it keeps you in debt for the full tenure of the loan, and you also end up repaying more than you borrowed since there is an interest component in each EMI.  —  By arrangement
Written by Publishing Team

Nobody likes to be in debt, but sometimes, one needs to borrow money to buy important assets like a house or a car. However, debt can prey on your income for years and drain your resources. A little smart planning and cutting down on unnecessary expenses can eliminate debt faster and in a more organized way — or leave you with multiple payments of equal monthly installments for years.

Do you want to get out of debt quickly? The following guide will help you out:

* Record all your debts.

Knowing how much money you still need to pay off is a good starting point. Instead of a vague or approximate estimate of the repayment amount, create an Excel sheet that identifies the exact amounts, different debtors, terms owed on each loan, and so on. Microloans can be repaid in part or in full from your salary. However, don’t divert your savings money toward paying down debt, as much as possible. For each payment, set a timetable for full settlement – it should be set realistically, depending on how the money will be raised to pay it off, the most expensive loans that need to be repaid first, etc.

* Aim to pay off expensive debt first.

Some loans that have a higher interest rate, such as home renovation loans And credit card loans, for example, have to be paid off sooner than others. You may even think about repaying private loans borrowed from friends and relatives – the sooner they close, the less difficult your relationships with lenders will be.

* Get a personal loan to consolidate as much of your debts as possible.

Your income may not be able to fully support repayment. It is not worth diverting a large part of your income to pay off the loan, as it leaves you with less disposable income to meet your other family’s needs. Assess how much urgent debt needs to be repaid by a certain date, and consider taking personal loan to unify it. A personal loan often helps with debt consolidation and partial or total debt cancellation. It also helps in improving financial management and simplifying several economic entities into one unit. However, you should first check your personal loan eligibility to see how much loan you can borrow. If the amount is less than required, you should not think about taking the loan. Borrowing the loan from one of the popular loan apps is a better option than getting it from the traditional lenders who take longer time to process and disburse the loan.

* Pay more than the EMI amount whenever possible.

Adhering to an EMI schedule is a good practice – any defaults reflect poorly on your payment history and credit score. However, it keeps you in debt for the full term of the loan, and you also end up paying more than you borrowed because there is an element of interest in each loan repayment period. The best way out of any loan repayment is to pay off the loan before its term expires, to save a large amount of interest payments. Regular prepayment also gets you out of debt faster – the money you pay on the EMI amount is deducted from the principal, so your total borrowing goes down with each prepayment. Thus, if your EMI for a loan is 3,000 rupees, for example, aim to pay 4,000 rupees for a few months or more if you can.

* Sell assets you don’t need – and transfer money to pay off debts.

It can become difficult to pay off your loan(s) unless there is a periodic infusion of funds to do so. A good solution is to monetize or sell the assets you don’t need. They can be two-wheelers that you don’t use, and you can rent them out to those who want to take road trips. Or it could be an extra room in your home that you can rent out to a paying guest. You may have an old investment in stocks or mutual funds that you can redeem. Funds from these avenues can pay off part or all of your outstanding debt.

Do you have any practical solutions to get out of debt? Tell us in the comments below.

Disclaimer: No Deccan Chronicle journalist was involved in the creation of this content. The group also assumes no responsibility for this content.

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