Manage your Debt

Loan, credit card bills, mortgage… how to manage them? In this time and age, we all are used to swiping our card without giving a second thought. Student and home loan are very common too. 

Everyone has some or the other debt. You may have little debt or more debt, but make sure you keep paying because, if you falter once, the amount keeps mounting and things can get out of hands. 

Here are some ways in which Debt can be managed well:

List your debt: List down all the debts that you have, as small as grocery bill or a small amount on your credit card to home loan or car loan. Also include the due dates, tenure and interest rate. This way you will have a clear picture of all your debts. 

Calculate your Debt to Income Ratio: Once you know your total debt, you can calculate your Debt to Income ratio which will tell you how much of your income is going to pay off your debt. For example, a total debt of INR 20,000/- and monthly income of INR 50,000/- gives you 0.4 multiply it by 100 is 40%. So, you are paying 40% of your total income towards your debt and higher percentage should ring an alarm for you to re plan and re budget your finances and reduce your debt. 

Pay bills on time: One habit everyone should imbibe is to clear bills or debts on time. This way firstly you have paid off your money on time and now you are clear about how much you can spend on other things. Also, when payments are delayed, they call for a late fee or interest which can be high.

Create a calendar for payments: We now have lots of apps which help you create a calendar for your payments. You can also set your payment dates on your mobile phone and set a reminder for few days ahead, so you know your bill payment is coming up. This way, you will not miss any payment dates. 

Decide on your Debt: If you have a credit card debt, it’s always better to clear it first as the interest rate on CC is always high and dragging it means paying way too much than what you actually owe. Also, if you have a payments like a home loan or car loan, where over the period of time, you have cleared your interest payment and now just the principal is pending, in that case, its ok if you don’t rush to clear that debt as now you are not paying any interest. (In loans like home, car or student loans, the bank first recoups the interest and when all of it is clear, will they start collecting the principal amount.)

Emergency Fund: In my earlier blog on Emergency Fund, I had shared why it is important and not to be missed when budgeting. When you don’t save up for emergency fund, an unforeseen event or thing could easy dip you in debt and you may not know how deep it may take you. But if you have planned for such unpredicted events, you are covering yourself up even before you are hit by it.

Debt is one burden we want to get rid off as soon as possible but at the same time not wipe away whatever little that has been saved. So be wise when firstly taking a loan or debt. Know your appetite to pay off your debt before you take one. If you can’t afford it, don’t go for it. Don’t rush for a car when taking the loan is going to be burdensome for you. Instead wait for some time, build up your fund, save and then take a car when you are ready to pay the downpayment and the EMI. 

Managing finance is about managing your wants and needs. If you go to full fill everything at one time, you could just land up digging deep holes in your pockets. One pro tip; be wise and prioritize. Wow, this rhymes.

For those following my blog constantly, thank you for your support and interest in my writing. I thrive to write and share as much useful information as I can which can be of some use to my reader. In my next blog I will talk about common credit card mistakes that we make.

Till next time

Spend wisely

 This blog is a part of Blogchatter’s #blogchatterA2Z challenge.