8 Steps to Getting Out of Debt

Can debt accumulation hurt mycredit score and financial planning? How do I ensure to stay on top of my credit report? How do I get out of this vicious cycle of debt? If you have ever pondered over these questions, now is the time to act upon it.

‘Debt’ is a word many dread having as a part of their lives, but it may inevitably crop up at some point in your life. Although it may seem difficult, it isn’t an impossible task to get rid of debt altogether. The benefits of clearing debts are multifold!

• You restore your control over your finances
• Getting out of debt helps your credit health
• Building wealth becomes easier & faster

Related Read: 7 Quick Tips to Increase Your Credit Score

As much as one works towards clearing them as soon as possible, the day-to-day expenses don’t help in getting rid of the weight of debt. However, there are a few strategies that you can implement to clear your debt sooner than later! Managing debt should be an integral part of making a financial plan. If you continue to go with the trend of increasing your debt year after year, you end up being in the negative of your net worth.

If you are looking to shed some ‘debt weight’ from your finances, here are 8 steps you can follow!

Step #1: Ensure that you pay your loan EMIs on time

To maintain a credit score needed for personal loan, paying your loan EMIs on time honestly does half the job. If you devise a plan and stick to it, paying off all your debt will be a cakewalk. If time permits, focus on clearing one debt at a time. Clear the debts that have the highest chances of penalization & interest rates; move in a descending order thereafter.

Step #2: Align your expenses properly

The aim is to plan in such a way that there is enough left to fend for yourself through the month and pay your debts & dues on time. Your expenses should not cross over to your share of the money set aside to pay loan EMIs. So, make a budget as per your income and expenses laid out clearly. Once you know the percentage of your income you must dedicate to debt clearance, it will be easy to align your other expenses.

Step #3: Clear your credit card dues first

To maintain a good creditscore, you must pay your credit card dues on time. So, if you have accumulating dues on your credit card, focus on clearing them first. This will play a role in maintaining your credit score. Ensure that you keep your credit utilization ratio to 30% to 40% of your credit limit.

Step #4: Prioritize your debts as per due dates & amount

You can choose to clear debts in 2 ways. You can clear debts with a high interest rate first and then move in a descending order. The other way is to clear debts as per amount. If there is a loan amount that you can clear in one or two payments, then clear those first and then move to the bigger loans.

Step #5: Prioritize loan EMI payments as per penalties

Focus on those debts which have high penalties. The last thing you want amidst stringent expenses is an added expense of a fine or probation. So, make sure you also consider clearing debts based on the penalties. Pay the ones with high chances of penalties first and then move on to the remaining loans.

Step #6: Set up Auto-debit wherever possible

Netbanking platforms for most banks offer the handy feature of auto-debit, which you can use to pay your credit card dues. You can also use this feature to take care of your other monthly expenses. So, a good move will be to make use of this feature on a date soon after your salary debit.

Step #7: Create a plan for debt clearance & follow it

Once you take care of clearing the accumulated debt, move towards putting a plan in place. This plan should focus on your income, debts, expenses & be date specific in every section. To avoid debt accumulation, you need to be disciplined and pay your loan EMIs & other dues on time. So make a plan & stick to it!

Step #8: Never let your debt accumulate beyond your control

Now that you have successfully paved your way out of debt, don’t sit back & relax! Make sure that a situation of multiple debts doesn’t repeat itself. Stick to paying no more than one or two EMIs at a time.

If you clear your debt on time, not only will your life be easy to manage, it will better your credit score too! If you are currently going through the phase of clearing multiple debts, checkpersonal credit score from CRIF, one of the leading credit information companies in India first & plan with these steps accordingly!