Spending and borrowing recklessly can lead to a debt trap and derail financial goals, and here are a few key tips to ensure you do not fall into it in the future.
Taking control of your finances does not happen overnight. If you want to get out of debt, you need to develop a proper strategy to help you increase your chances of success in the new year. There are a number of tips that you can use to reduce your debt and hopefully become debt free by the year 2023.
Make a list of your income and expenses
In order to manage debt effectively, you need to draw a list of your income and outgoings as soon as possible.
Start your budgeting by figuring out the fixed costs for the new year. These are the costs that cannot be condensed or evaded each month.
In order to make the most of your available disposable income, it’s important to be realistic about how much you’ll need for day-to-day living as well as your source of income on a daily basis.
Get rid of what isn’t needed
You should also align your spending with your values and cut expenses to start taking control of your finances. Experts recommend reviewing your monthly subscriptions since services such as gym memberships, cable TV subscriptions, and online streaming subscriptions can add up very quickly.
As a rule of thumb, it is better to write down all earnings and expenses over the course of a month. You can then evaluate the financial activity at the end of the month, and if there are any costs that seem unnecessary, you should stop them immediately.
Make EMI payments automatic
As a first priority, you should make sure that you repay your debt by opting for an auto-debit option. You should also avoid rolling over the amount of your monthly debt on your credit card to the next month by paying the outstanding bill by the due date.
Develop a debt repayment plan that makes sense
It is possible for people who are already burdened with excessive debt to come up with a sensible debt repayment strategy. To begin with, you should make sure you do not incur any new debts, especially credit card debts. Alternatively, if it becomes difficult for you to pay the EMIs, you can sell some of your investments or non-income-generating assets and use the proceeds to pay off the debt.
It has also been observed that lenders often offer debt restructuring options that would assist borrowers in making faster payments on their debts.
Bonuses or salary increases can be used to settle short-term loans
There’s nothing like earning a promotion at work or getting a bonus. However, if you get an additional bonus or promotion at work, you shouldn’t keep it in your bank account. Instead, use it as a means to settle short-term loans you owe.