Nowadays, it is very easy to secure a loan or get a credit card. The easy line of credit have made individuals complacent about efficient debt management. Many people take another loan to pay off their existing debt and get stuck in a debt trap. And then, instead of financial planning for their short and long term goals, they just worry about paying off their debts.
If you are stuck in such a situation then the first thing that needs to be done is substantial cut down on avoidable expenses. You stop unnecessary splurging on eating out, vacations, online shopping, and more through credit cards or online credit.
#1 Calculate your total debt
Knowing how much you need to repay can help you create a feasible recovery plan. Majority of salaried individuals today have multiple loans including car loan, education loan, home loan, personal loan, and credit card bills. Add up the amount you need to repay along with interest rate and the number of EMIs.
#2 Good and the bad loan
Loan taken to buy a house or for education is classified as good loan. These loan help in building assets and your professional growth along with tax benefits. However loan taken to buy depreciating assets like a car or an international trip is known as bad loan.
Segregating between bad and good debt will help you prioritize the payment. Consider paying loan that bear high interest first.
#3 Stop credit card transactions
Instead of using credit cards, start using cash or debit cards. Wherever, you can't pay through cash, you can just avoid that purchase instead of swiping your credit card. The will help you cut down on unnecessary expenses.
If you have large credit card outstandings then it is advisable to pay them off as soon as possible to avoid hefty interest and late payment charges. You can do that by taking a soft loan from relatives or friends.
#4 Make a spending budget
Differentiate between need and want to create a feasible monthly budget. Expenses like rent, office travel, utility bills, groceries, and pocket expenses can be included in the budget. You can exclude shopping, eating out, and leisure travel from the budget to keep the expenses minimal.
#5 Take help from family
There is no point in struggling alone while your other family members maintain the same lifestyle. Share your debts with the family to seek help. Collective efforts will help you to easily come out from the debt trap.
A well planned and disciplines approach can help you in clearing all your debts easily.