Debt is a dreaded word in India. You will have watched lot of bollywood movies where Debt plays a central character. Mother India is one of the classics where Debt is central to the movies plot.
Debt is inevitable, and most have one or the other. Most common are loans taken to buy car or Home. However, in the recent years loans taken for discretionary spending are becoming very popular. I will put credit card debt and personal loan (to a certain extend) in this category.
Keeping aside the topic of good debt/bad debt most economists would agree debt on personal level may be bad but strangely debt fuels the economy.
There will be no growth without credit
And many times it is good.
But the problem is excess of credit will cripple you.
It would be like running a race with 100 kg sack on your back. Towards the end
- You will not win the race,
- You will also be exhausted.
- depressed that you will not win and you see others lapping you around
- and you would say life is unfair with you.
You need to get rid of debt if you want Finzaadi – live life without financial woes.
Use these 12 tips on how you can get out of debt in India
1.Know how much you owe
You have to begin with this if you already not know it. Create a list of all your borrowings and start putting them in a spreadsheet or a notebook. Capture key details like the amount outstanding, duration, EMI and interest rate that you owe on each one of these loans. Include even the bills that you are neglecting and add them up as well. In the end you should be able to total it up and tell yourself the amount that you want to pay off.
2. Create a plan of repayment
Once you have the number that you have to tackle, create a plan to payoff the amount. Know how much money is coming in from all sources and see what is the maximum amount you can pay off montly. If it means making sacrifice then make them but you have to start making bigger payments to get out of debt. Set yourself a target date to be debt free. Trust me without a goal and a plant you will not achieve anything.
3.Negotiate the lower interest rates
Do this – pick up your phone and talk to your bank representative and check if your interest can be lowered. I know for Home Loans banks don’t revise down the interest unless you go and check with them. Same goes with personal loans. I get few calls every week asking if I have a high interest loan that I wish to transfer. Use these as a leverage to lower your interest rates or you bank doesn’t do it then switch to the one which provides loans at lower interest rates.
4.Pay off the highest debt with high interest rate or Lowest amount
By now you would have good picture of your debt landscape. You know the details of all your debts and have the negotiated interest rates. Now you can pay off debt either of the below methods.
you can choose debt on which you are paying the highest interest rates. Typically credit card debts have the highest interest rates which can attract as high as 35-40%. This can compound and very quickly become difficult to service. You can start by paying them off which will help you reduce the interest burden significantly.
Other way is to start with the debt which has the lowest amount outstanding. You can pay such debt off quickly and then take care of the next one. This method will free up resources with each time Negotiate the lower interest rates
5.Ask help from your parents
If you have parents or family members who are financially stable, you can share your situation and see if they can help out. Borrow from them if you can and use the money to pay off your debt.
Please ensure once you’re done that you are again returning the money that you have followed. Money has this strange power to mess up relationships. Don’t let it do that.
6.Reduce stupid expenses
With the acquired knowledge of how expensive credit card debt it, check your credit card statement for stupid expenses. Look at your credit card look for expenses to spot
- impulse buying on sale or
- monthly subscription of Netflix Amazon,
- gym membership which you don’t even use
Look for these patterns for these expenses which are not adding any value and stop them. Use the money saved to pay off debt.
7.Increase income or negotiate a raise from your employer
This is one step which not many people go and do including myself. This is to go around middle of the year of your appraisal cycle and check with employer to see if you can get a good raise this year.
Be open about your financial difficulties and discuss how a raise will help you out of your situation
See if there are certain sales targets or KPI that you will have to achieve to get a raise.
More often than not if you are a good performer you would end up getting a raise. No one wants to see a good person leave.
8.Make a frugal budget
Stop going on long vacations, stop spending on unnecessary clothes, stop spending on weekend parties till you are out of debt. You have to be frugal until you are out of debt. Make a budget which fulfils your basic necessities and nothing more. Luxuries can wait.
9.Find free entertainments
Pickup a new hobby like painting or reading during the weekend. Find sources of free entertainment for example go for a stroll in the park near your or have your friend over for a house party.
Keep yourself entertained on a budget, else you will be frustrated and again go on a spending spree. Have a balance between being frugal and being miserable.
10.Stop investing
There’s no point investing in stock market for putting money in your fixed deposit if you already have outstanding credit card loans which for which you are paying 35% interest yearly. Pause your investments for some time until you are get free or you have debt at a comfortable level.
11.Sell items you don’t use on olx and quicker
Do a scan of your home and you will find things that you don’t use. You will be surprised to know that you can actually get rid of those things and also make money out of it.
Check the treadmill that you have not been using or the bicycle that you had thought of using every morning but you don’t. Put them on the OLX/Quickr and get rid of it. Put the money to use.
12.Find work on weekends
If you have set up a target that you know it cannot achieve out of your current earnings see if you can find some work during weekends. This is something that I would advise as a last resort because we should have the time to relax, replenish the energy and spend time with your family.
If you follow these steps I have no doubt that you will be out of debt in the time that you have set for yourself and trust me you will experience freedom.
You will feel a very big weight which is got out of your shoulders. You will be lot more confident in your life. You would be one step closer to achieve Finzaadi.
