Debt looks like a huge pile of laundry that's difficult to sort. However, with some planning, it is easy to payback your debts faster. Paying off your debt is not as easy as we may think; however, few simple steps pave way for you to lead a debt free life soon:
1. Create a Roadmap
It's always good to record your monthly income and expenses and plan some savings. Make sure you squeeze your expenses well within 80% of your income and stack at least 20% every month towards your savings to pay off debts. Following your savings plan will allow you to nurture a habit of saving and hence pay-off debts. Also, mark a month/year when you must achieve your goal of being debt-free.
2. Good Credit vs Bad Credit
Listing your debts will make your target and deadlines clear as you'll know which loan is costing you more interest. Categorize your debts as debts from good creditors and bad creditors. Good creditors will include loans that levy less interest-rate and qualify for tax-deductions, eg: home loan, car loan, education loan, etc. Under Bad creditors, you can categorize financial options and loans that levy high interest rate and no tax benefits, eg: personal loan, outstanding credit card bills, etc.
3. Transfer Loans
Once you've bifurcated your loans as good creditors and bad creditors, analyze that how much interest-rate other banks are charging for similar credit. For example: Bank X might be charging 10.75% interest rate on your home-loan while Bank Y may be offering the same at 10.25%. Talk to your bank to reduce the interest rate; otherwise find out how you can transfer your loan profitably.
4. Avoid Taking More Loans
Avoid debts that further weigh you down; limit your credit card use, stick to your monthly budget, do not splurge on unnecessary shopping; thereby keeping yourself restricted until you clear high-interest rate loans. Paying-off your credit card bills can be a big help, also discontinue the same habit that lead you here in the first place.
5. Use Your Bonus or Windfall Gains to Settle Debts
Lastly, if you have received a bonus or money from a legacy or windfall gain, then you must plan to get rid of your debt as a priority; and also invest some of the left-over amount where you can receive good returns.
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