Create a comprehensive
list of all your debts, and compile the information in a table format that
encompasses outstanding balances, interest rates, monthly EMIs, and overall
debt amounts.
Direct your attention
to your monthly budget, encompassing all sources of income and expenditures.
Trim unnecessary expenditures such as expensive gadgets, clothing, and
furniture etc., Strive to save diligently until you attain a debt-free status.
Formulate and establish
an emergency fund capable of swiftly addressing your debt obligations. If
necessary, seek the guidance of a financial adviser who can provide expert
assistance in crafting effective debt management strategies.
If possible you can
start to search out other income source like part time jobs, e-commerce,
broking in real estate or something related to your fields. Extra income can downsize your debt.
Not to worry about your
debt, without taking loan nobody can survive in this earth e.g,. for setting up
any industry need finance from bank, to buy home we need finance, expansion of
business need finance etc., even countries also taking loan for to stable / grow
their economic. The debt management is
the right solution to become debt free.
Example : Mr. Narayan is a 35 years old individual who has
accrue several types of debt over the year, including a credit card outstanding
balance of INR 3,00,000 with an interest rate of 33% pa, a personal loan of INR
1,00,000 with an interest rate of 15%, and a educational loan INR 2,00,000 for
his daughter with an interest rate of 7%. He is struggling to make
timely payments and wants to take control of his debt.
1. Analysis
Narayan started by analyzing his current financial situation and
made a comprehensive list of those.
Total Credit card outstanding balance or debt INR 3,00,000
Total Personal Loan outstanding or debt INR 1,00,000
Total Education Loan outstanding or debt INR 2,00,000
2. Budget
Narayan make a note of his monthly budget to understand his monthly
income and expenses. He categorizes his expenses as essential like rent,
utilities, groceries, etc. and non-essential entertainment, hoteling, etc., after
analyzing and deducting all the essential expenses from his income, he come to
know how much extra he can arrange to pay for debt repayment.
3. Priority
Narayan come up with the list of debts based on high interest
rates and started paying first or decides to give priority to them those debts
with highest interest rate.
4. Debt Repayment Strategy
Credit Card Debt: Narayan allocates a significant portion of his
disposable income to pay off his credit card debt as quickly as possible. He
pays more than the minimum payment each month, targeting the principal amount
to reduce it faster. This approach helps him save on the high-interest charges.
Personal Loan Debt: While continuing to make the required payments
on his personal loan, Narayan considers making occasional extra payments
whenever possible. This helps reduce the principal amount, which in turn
reduces the interest paid over time.
Educational Loan Debt: Narayan continues making the regular
monthly payments on his educational loans since they have a lower interest
rate. He might consider refinancing options to lower the interest rate if
available.
5. Negotiation and Consolidation
Narayan explores options to reduce his interest rates. He calls
his credit card company and negotiates a lower interest rate, based on his
commitment to pay off the debt. Additionally, he investigates debt
consolidation options; he combines his debts into a single loan with a lower
interest rate, simplifying his payments.
6. Staying on Track
Narayan tracks him progress regularly by monitoring his debt
balances and overall financial situation. He adjusts his budget and repayment
strategy as his financial circumstances change.
7. Celebrating
As narayan pays off each debt, he celebrates his achievements. The money that was once allocated to the paid-off debt can now be redirected towards the remaining debts, accelerating their repayment.
