5 Financial Strategies for Improving Personal Debts
Saturday, November 23, 2019, 6:00 AM | Leave Comment
Falling into debt is not something to be ashamed of. There isn’t a ‘falling’ at all. It is an excellent financial tactic to borrow rather than spending every penny from your piggy bank because you don’t know when you will need them.
Debts are both good and bad. If you can look back, because of a loan, you might have a good house, a car, or maybe you have an education loan that is funding your college fee, or it is that cup of tea that your friend paid for.
The real problem is when you have to pay for it with interest. You don’t have to have a degree in finance to manage money.
Talking about debts, it doesn’t have to be big loans from banks with huge interests. It can also mean credit card debts or unofficial ones like borrowing from a friend. People say it is a ‘debt trap,’ but in fact, it only becomes a trap when you are stuck in a cycle of it like borrowing money and then borrowing again for the repayment of the previous one.
Below are five tips to improve your financial strategies by having a loan.
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Initial Stage
Before applying for a loan, make sure that you are capable of repaying it. For effective repayment, you need a steady income. Make sure that you will have enough money for bread after paying it monthly or in any order of installment.
It is a universal rule that you must save one-third of your income for the future. It is like a buffer stock of money. So, before you proceed with a loan, make sure you have enough buffer or a steady flow of income in order to repay. Other than having a regular income with a 9-5 job, try making money creatively by engaging in simple yet effective ways to make money on the side.
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Keep an account on your debts
All banks give you passbooks that have your loan details like the paid amount, the amount that’s left to be paid, etc. But since we’re also focusing on unofficial debts, you yourself may have to keep an account of them. Even though you are not that high on debts, you must always jot them down somewhere in your diary or make use of the technology and mark them on your phone. Set reminders if you want so that you don’t forget the dates.
You must also inform others about your debts, and the ‘others’ here are your close ones like your family members or close relatives. They can help you in repaying them or even reminding you to repay them.
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Repay the money as soon as you can
A stitch in time saves many. If a loan is left unpaid, then through time, it just gets bigger and bigger. For instance, if you don’t repay your bank loans, then after your time, it is your children who have to suffer.
So, before learning some hardcore financial moves, the first habit that you should have is the habit of paying immediately. This applies to EMIs also (Equated Monthly Installments). If you skip a month, then it is just going to build up like a snowball. Make sure you repay your loads then and there and pay your EMIs at the start of every month.
Some banks allow you to prepay the loan amount. That is, if the debt is for ten years, then you can repay it within five years by doubling the amount paid in each installment. But, be careful as some banks charge for prepayments, in which case it is a waste of money because you would rather pay less amount in more time.
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Debt Consolidation
Whenever you are going to take a loan from banks, sometimes banks imposed very high interest on you. So, there is a high chance that it will damage your initial credit. But if you pay in time then it will be recovered automatically with the passing of time.
You can use a credit card for debt consolidation because you don’t have to hand the money over. Consolidation will work best if you have a high credit score, a stable source of income, and you apply self-discipline. It’s something you should consider but this is something you want to discuss with your financial advisor first.
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Dealing with credit card purchases
There is a separate point for credit card debts because everyone is most likely to use a credit card at some point. Some banks provide cards free of cost. Credit cards are an excellent way to spend and manage money if handled responsibly.
If you make a payment using a credit card, most banks will give you a time period of 45 days within which you can pay back only the principal amount. This is a brilliant way to survive. You get money when you need it, and you can repay the exact money later when you have enough. But don’t rely too much on credit cards.
Use it for a slightly bigger purpose than usuals like grocery shopping. Try to make the payment completely and not just to put yourself on a safe point by paying the minimum because it might cross the grace period and attract penalty interests, which are currently a minimum of 24%.
These are the few great ways to improve your financial debts. Follow these guides wisely and always remember to save up and watch your future become brighter.
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