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Vital tips on combating excessive debt

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Vital tips on combating excessive debt

Financial security is something that you can falsely feel when you can easily access credit cards and loans along with having a stable income. However, this may lead you straight into a debt trap for accomplishing your goals. You may find yourself stuck in a situation where your loan installments and other expenses exceed your overall monthly income. You may then think of borrowing more in order to control the situation out of desperation. If this cycle continues, you may fall into what is called the classic debt trap.

Some individuals often fall into this trap in case of job losses or other business loss. There may also be medical emergencies or other crisis situations in the family which may lead to higher debt than usual. However, you can always find the right solution in such cases. You should always take into account the gravity of any situation and also the importance of correcting the same as well. You should carefully assess your requirements and reduce unnecessary expenditure in order to maintain a good level of savings. This will help you repay loans in a timely manner without missing any installments.

In case you have savings that are quite at par with outstanding loan balances, these can be tapped for repaying debt. In case you have borrowings from multiple sources, you should always have a priority list of debts that will be repaid. You should always repay dues from credit cards and personal loans which are outstanding, particularly since these have higher rates of interest. You can also look at secured loans like car loans, gold loans, loan against property and loans against securities which have lower rates of interest.

Suppose you do not have adequate savings but you already own some assets such as gold, car or property, you can opt for a loan against the same at considerably lower rates of interest. This will help in making repayments for unsecured loans such as credit card dues which come at higher rates of interest. You can request lenders to scale up the loan tenor. This will help in lowering your monthly EMIs and make the situation slightly more manageable. Whenever your income goes up in the future, you can always use it to prepay your loan at the earliest.

Suppose you do not have adequate income for repaying EMIs in case of low-cost loans but you also have assets such as property, gold, car and so on which you do not use, you should sell them immediately. In case of property which is self-occupied, you should always get valuation done for real estate assets and choose whether you should sell the same for loan repayments. However, it may not always be a good idea to sell real estate unless you have stretched when it comes to purchasing a premium property for your own accommodation. You should try and request for zero-interest loans from your own close friends and family members to repay loans. They can be paid back steadily thereafter.

 

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