5 tips to get out of debt

5-tips-to-get-out-of-debt

It often happens that after you graduate, you get a good job with a fat paycheck. You waste no time in living the life you’ve dreamt – a posh flat, classy clothes, expensive meals at the best restaurants, gym memberships and so on. However, you could get tempted into overspending, or even lose your job, or suffer losses in investments made. After all, nothing is guaranteed. Multiple debts from banks, if not repaid on time, can get you into a serious problem. Read on to know how you can get out of such a situation.

Know your actual income

Take stock of your in-hand income, apart from your gross income and income after taxes have been paid. It is necessary to know the actual value of money that gets deposited in your account every month. Settle a monthly repayment amount keeping in mind this value.

Make a monthly repayment plan

You know your total debt, interest rate and your total monthly income, but you perhaps do not know the minimum amount you should pay per month to get out of the debt. You need to do some calculations to figure out which debt you should repay first or whether you should pay a certain amount on each loan every month. Instead of settling debts randomly, you may want to focus on one repayment at a time. You can also consider transferring your credit card debt to a card with a lower rate of interest. This is one of the important factors that you should consider before getting a loan.

Identify ‘good’ and ‘bad’ debt

Good debt refers to money loaned for investment purposes. These include loans for education and housing, which could actually have increased your wealth in the long term. Bad debt refers to credit card purchases, personal loans, or money taken for buying assets whose values depreciate over time. Bad debt can be easily identified with generally high-interest rates and that is the biggest reason why you should pay it off first.

Think before borrowing

Typically, you should pay off loans with the highest interest rates first. The interest rate is more important than the amount of money outstanding. You can begin with repaying debts on credit cards first. You can also pay off smaller amounts by getting small payday loans from a money lender, which you can repay when you get your salary.

Get in touch with creditors

Always be available while you are under debt. Fighting your creditors or fleeing is a bad idea. The recovery methods are often such that debtors are led to believe that agents are inflicting personal harm on them. This is untrue, and you should always have your lenders believe you are going to repay them. Debt consolidation loans are a slightly better option as they let you consolidate all your debts and pay them off. The interest rate is lower too.

Finally, a piece of advice! It is always a good idea to borrow from a reliable money lender in the first place. However, do know how to choose a reputable money lender even though they are licensed. Borrowing from a licensed money lender means that you’ll borrow only small sums of money at a time. Small debts, no matter if the interest is high, are always easier to pay off.

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