New Year brings with it new beginnings for all walks of life including financial management. Everyone wants to have a good and perfectly organized financial life but seldom do people achieve the goal. One of the biggest reasons that people fail to attain their financial freedom is due to the dreaded debt tarp. Debt can eat into one’s finances silently. The larger the debt, more cash flow is involved into paying off the underlying interest. As the interest of various debts gets compounded, so does the overall financial health. This New Year make a resolve to manage all your debts intelligently and smartly so that you can usher in the New year free of any old debt traps and plan your financial future with freedom.
Avoid Impulsive Spending: Prevention is better than cure it is said. Nothing can be more apt when it comes to avoiding a bad debt trap. Cutting out impulsive spending can be one of the best decisions to avoid a debt trap situation in the future. A lot of people shop impulsively without any purpose and need. If you are one of those with a bad habit of over spending or buying things that you do not necessarily need, spending less and saving more may be the perfect remedy for you. In this day and age of economic uncertainty and global recession, a penny saved is a penny earned. Controlled the bout of impulsive spending may not mean living the life of a miser but a more self controlled living resulting in better financial well being over a long term.
Pay off Old Debt: The best way of bringing down debt is to pay it off before the debt gets compounded. If you have some extra cash in hand, use it to pay off old debt rather than using it for other expenditures. Debt with higher interest rates like credit card bills, personal loans and home loans must be finished off first compared to other debt. Annual bonuses and perks and benefits that you may receive from your company can be used exclusively for paying off such debts. Rather than holding on to the debt and paying a substantial amount of cash towards interest, it makes more sense to finish off the debt completely. For those of you feeling the pinch of debt for home loans, it is paramount to keep options open and look out for better interest options in the market. If you find a better deal, it is usually a good idea to switch over the home loan as it can help reduce the total term and help save on interest costs substantially.
Cut out on Unnecessary Cards: In this day and age of plastic money, people sometimes tend to go overboard and have multiple credits and debit cards in their possession. The more the number of such cards in one’s possession, the higher is the chance of unnecessary spending. The more number of credit cards, the higher is the chance of missing the deadline for free payment limit. Once you get into the territory of compound interest for credit card dues, the debt can rise exponentially in a short period of time. A lot of people falsely equate financial standards by the number of credit cards in one’s possession. While credit cards have their intrinsic advantages, holding multiple credit cards is a sure shot remedy to financial debt tarp at some point in time.
Invest More of Your Income: Cutting off old debt is one thing but it makes a lot of sense to invest some part of your earning in a contingency fund. Such emergency funds can be useful while paying back old debt and nipping the debt devil in the bud. Investing is a good habit that one must cultivate to make sure the overall financial health of a person and his or her dependants is never compromised possibly due to bad debt traps.
Hire a Debt Counselor: If the quantum of your debt is substantially high, it is essential to hire the services of a professional debt counselor. A debt counselor specializes in resolving all debt related issues by considering multiple options. Walking all alone while facing a debt trap may not be a good idea. If spending the consultancy fee for a debt counselor is an issue you can check out various free advisors. A number of banks and non banking financial companies have Financial Literacy counseling centers which help consumers in credit and debt management without charging any consultation fee.