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Financial Planning

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Debt Management

It is very easy to get into debt nowadays. 

Almost everybody at some point in their lives takes a significant amount of loan or some type of debt i.e. credit card debt, home loan, personal loan, car loans, or even a combination of these loans. 

If you find yourself in a situation where you feel like there is too much debt to handle and you need to get out from under the debt as soon as possible, there are some simple steps that will certainly help: 

i. Breathe. 

It might feel like this is a great burden, and perhaps it is indeed taking a toll on your finances, but worrying about it will not make it go away. 

The first thing you need to do is realize that you need to take control of the situation – and the steps to do so are very simple and straightforward. 

Do remember that this is not an uncommon situation, it happens to a lot of people and anybody can get out of it by taking very simple baby steps towards a solution. 

ii. Do Not Increase Your Liabilities. 

If you find that you are already stretched, you may find that well-wishers are advising you to take another loan to pay off your existing loan. 

You would simply be delaying the time when you do have to sit down and pay off the debt. Do not add to your existing liabilities by taking on more loans. 

Once the existing liabilities are cleared, if you find that you need to take another loan – 

  • Make sure it is easily serviceable by your existing monthly income; and 
  • The terms (tenure, rate of interest) are suitable to you. 

This should be done only after your existing liabilities have been paid off.  

iii. Take Stock of Your Liabilities. 

Maintain a Personal Budget. 

This simple and often ignored tool is an excellent resource in your battle against debt and by maintaining a good personal budget, success against debt is achievable. 

Create a table which contains all details of the various loans taken, loan type, each loan’s outstanding tenure, EMI, rate of interest and outstanding amount. 

If any of the loans are collateral-based/secured, you might want to clear those first.

The rule to be followed is that you should pay off the highest interest-rate-debt first. 

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