Priyanka Iyer
For those in debt, the concept of debt can be very conflicting. On one hand, while debt can help you attain your financial goals, there is another unpleasant aspect of debt that can trap individuals and entities between severe financial needs and weakened balance sheets. The concept of debt and its effect on people has been exacerbated during the current times, while you’re thinking of debt management with fears of losing your job or going bankrupt.
In the past few months, millions of people lost their jobs or got furloughed, and its impact can be seen in the rising number of defaults on loan payments. Often, people take more loans to repay their previous debts, and end up becoming a part of a vicious debt trap.
For those looking for smarter ways to get out of the debt trap, here are 5 ideas to get started.
- Make a list of your debts
While the advice to create a list may sound cliché, it is important for debtors to know how much they owe, and to whom. Ensure that your list includes:
- Details of creditors
- Amount of debt owed, to every creditor
- Monthly payments due
- Interest rate on your debt
- Due date for every debt
Once you have this list ready, club your immediate and long-term goals. Tally the amount due, with your savings and create a monthly bill payment calendar. This step will help you analyse which debts to pay first, so you can prioritise your debts.
- Modify your household budget
If you’re looking to pay off your debt faster, it is important to cut your expenses to the minimum. Prioritise your expenses, and avoid expensive, recurring costs involving dine-outs, subscription plans, travel for leisure, or any unnecessary spending. You can use online tools for logging in your expenses. By skimming costs, you can raise enough savings to pay off immediate debts.
You can also consider selling items you don’t need, so you can drum up some immediate cash. To sell such items, you can approach online resellers or post on social media communities relevant to the sale of those items.
- Get a seasonal job or consider freelancing
It can be very challenging to find the right job, in the middle of this pandemic. However, you can choose to go for a seasonal or part-time job. You can also use this time to upscale yourself with free courses on various platforms, so you can take up freelancing assignments or jobs that require you to work from home.
There are several freelancing websites that can help you register for free, and get the required work, as per your skills. Registration on such websites is easy, and requires you to verify your details before you get started.
Funds from such jobs can be useful in catering to your household expenses, or replenishing your reserve of savings. You may also be able to direct some of your earnings towards paying off some of your debt.
- Negotiate on interest rates and opt for balance transfers
Negotiate with your creditors on interest rates, so you can make a headway on your balances. Asking for lower interest rates on your loan, or credit cards is quite commonplace and can be useful in reducing your debt burden greatly.
In case of high loan interest rates, look for lenders willing to offer loan at lower interest rates. You can consider a balance transfer in such a scenario, to avoid having to pay high interest rates on your debt. If balance transfers or negotiations don’t work, you can also consider availing a personal loan for debt consolidation, at lower interest rates.
- Use emergency funds or liquidate insurance policies
In extreme cases, consider liquidating your emergency funds, or cash out an insurance policy, wherein you may have accumulated some cash. However, once you’ve gotten out your debt, make sure you expedite your savings and contribute towards your retirement fund.
Try to consolidate your debt, and avoid falling into further debt by borrowing more. Smarter management of debt can help you outfox these financial challenges and enjoy a debt-free life at the earliest.
