A loan can be very beneficial, but bad debt can put you in a lot of trouble. A debt trap is simply a situation in which debt is nearly impossible to repay due to high-interest rates, limited financial resources, and multiple loans with multiple EMI payments. Debt, on the other hand, can be effectively managed if you understand its complexities. So, on this Fourth of July, let us learn how to get out of debt and live financially stable lives. 1. Recognize the issue If you have a lot of credit cards and have exceeded or are about to exceed your credit limit on one or more of them, you’re probably in debt. In such conditions, the best way to analyze is to go for choosing a correct debt management plan like IVAonline or debt consolidation loan according to your requirement. Missing EMI payments and incurring charges on larger amounts pose a greater risk. When you are unable to repay your debts on a regular basis and it appears that you will not be able to do so soon, you have fallen into a debt trap. If your total debt from all sources exceeds your invested corpus, liquid assets, and all other investments and, more importantly, constitutes a significant portion of your salary, this is a major red flag. 2. Make debt a priority. You could be in short-term or long-term debt. Short-term debt includes credit cards and personal loans, whereas long-term debt includes home loans. After you’ve divided your debt by tenure, begin attacking the loans that are more expensive in terms of interest rates, overhead costs, and fees. The interest rate on long-term loans, such as home loans, is lower. Credit card loans, on the other hand, can have annual interest rates as high as 35-40%. Failure to pay credit card bills on time results in a monthly interest charge as well as a slew of other fees, which may increase the risk of overuse. 3. Create a payment plan Start by keeping track of your expenses if you’re having trouble saving money. Spend less on non-essentials like leisure trips, movies, and luxury purchases. Try to come up with creative ways to cut your daily expenses, such as carpooling, taking a taxi to work, or eating home-cooked meals instead of ordering takeout. Creating a good payment plan can altogether make your stress level down especially making the working as well the structure more valuable. If you have the time, you could even consider taking on side jobs to supplement your income. Although managing your loan may appear to be a challenge and you may feel as you are in some shot of debt trap. Keep in mind that it is only temporary, and you will not be required to limit yourself until your finances have been restored. 4. Make sure you have adequate insurance coverage Purchase appropriate insurance to protect yourself and your family in the event of a catastrophic event. The sooner you buy insurance, the lower your premiums will be. Getting insurance allows you to put all of your money toward debt repayment rather than worrying about rising healthcare costs. 5. Request that your bank extend the term of your loan. If you have a home loan, you can ask your bank to extend the term of your loan. While this raises your interest rate, it lowers your monthly EMI payments and gives you more time to repay your debts. If you have a long-standing relationship with your bank, you should even try to negotiate the interest rate. Consider switching your current loan to a bank with a lower interest rate. 6. Increase your monthly payments and EMI contributions. To pay off your loans faster, you can increase your EMI contribution proportionally to your salary increase.
