Nobody wishes to be in debt, but sometimes, one needs to borrow money to buy important assets such as a house or a vehicle. However, debt can prey on your income for years and drain your resources. A bit of clever planning and curbing unnecessary expenditure can eliminate debt faster and in more structured manner – or you are left repaying multiple EMIs for years.
Do you wish to get out of debt quick? The following guide should ease you out of it:
* Make note of all your debt.
Knowing how much money you still need to repay is a good starting point. Instead of an ambiguous or rough estimate of the repayment amount, create an Excel sheet outlining the exact amounts, the different debtors, the outstanding tenors on each loan, etc. Smaller loans can be repaid in part or full from your salary. However, do not divert your savings fund towards debt repayment, as far as possible. Against each repayment, set a timeline for full settlement – these must be set realistically, depending on how you can raise the funds to repay, the most expensive loans that must be repaid first, etc.
* Aim to pay expensive debt first.
Some loans that have a higher rate of interest, such as home renovation loans and credit card loans, for example, should be repaid earlier than others. You might even consider paying off private loans borrowed from friends and relatives – the sooner these are closed, the less awkward your relationships with the lenders become.
* Take a personal loan to consolidate as much of your debt as you can.
Your income might not be able to support the repayment in full. It is not feasible to divert a large part of your income towards loan repayment, because it leaves you with less expendable income for your other household needs. Take stock of how much urgent debt needs to be repaid by a certain date, and consider taking a personal loan to consolidate it. A personal loan often helps in debt consolidation and eliminates debt partly or fully. It also helps in better financial management and streamlining multiple EMIs into a single one. However, you must first check your personal loan eligibility to know how much loan you can borrow. If the amount is less than required, you should not consider taking the loan. Borrowing the loan from a reputed loan app is a better option than taking it from traditional lenders that take more time to process and disburse the loan.
* Pay more than the EMI amount whenever possible.
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. The best way out of any loan repayment is to repay the loan before its tenure is up, to save considerably on interest payments. Regular pre-payment also gets you out of debt faster – the money you pay over the EMI amount is deducted from the principal, so the overall borrowing reduces with each pre-payment. Thus, if your EMI for a loan is Rs 3,000, for example, aim to pay Rs 4,000 for some months or even more if you can manage to.
* Sell off assets you don’t need – and divert the money for debt repayment.
It can become difficult to repay your loan(s) unless there is periodic infusion of funds to do so. A good solution is to monetise or sell assets that you don’t need. It could be a two-wheeler you don’t use, which you can rent out to those wanting to do road trips. Or it could be an extra room in your house that you can rent out to a paying guest. You might even have an old investment in shares or mutual funds that you can redeem. The money from these avenues can repay 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 creating this content. The group also takes no responsibility for this content.
