While it is not possible to completely get rid of your debt as some of them may be long term, you can surely manage the ones that need your attention.
As the financial year 2018-19 kicks off, it’s time to get your money management on track, a large part of which may consist of debt. As much as savings and investments are a priority, so is paying off debt, which will enable you to enjoy a happy and care-free life. While it is not possible to completely get rid of your debt as some of them may be long-term ones, you can surely manage the ones that need your attention, to have as less of debt as possible.
Here are some steps you should take for your debt management and it should start now, at the beginning of the new financial year:
Make a Detailed List
Start by pulling out every credit card and loan statement, and asses how much you owe to creditors. Don’t just restrict yourself to EMIs, pull out all pending credit card bills, for which you may have been making part payments until now. The goal should be to clear as much debt as possible, starting with the ones that require immediate attention.
Obtain a credit score from any reputable agency and find out where are the loopholes if any. Your credit score will have all of your debt history. So in case you miss any, it will show up. In case a debt is settled and still reflects active on your report, make sure to get in touch with the lender.
Once you have all the debt documents, prioritize to see what can be realistically paid off. Let long-term loans like home loan, education loan stay intact unless you acquire a large sum with which you may want to foreclose or part-pay. Remember, the key is not to overburden yourself. So think which debts you can clear off the fastest or which one needs your attention the most.
Assess Expenditure Vs Credit Pay-off
While it’s necessary to pay off creditors, it’s also important to make a realistic estimate of how much you can set aside for debt payment, so that you do not compromise on your monthly expenditures. There is no point in clearing debt, only to fall short of funds for necessities and having to resort to credit again.
Make a list of monthly expenditures, and annual payouts like insurance premiums, to make sure you don’t fall short of funds when needed. It’s also advisable to keep some liquid funds handy as your impending credit may not allow you to borrow more when in emergency, or even if it does, the loan burden will be massive.
Stay Away From Further Credit
The objective of debt management is to clear you dues as much as you can, so when you near retirement, you do not have any lingering loans. Say no to credit cards for a while to get into a habit of spending only what you actually have. Even if you need to make an emergency purchase, convert the payments into EMIs, as you will get more time to pay those off.
Do not indulge in any further credit, unless you absolutely need it. Consider breaking some form of saving if the need is urgent rather than resorting to debt and having to bear the burden later on. A good credit history is essential to securing funds in future for larger investments. But if you fail to clear your credit line and keep mounting more debt, a downgrade in your credit score may not be far off.
(The writer is CEO at Bankbazaar.com)