Loans are often an essential stepping stone that helps us achieve our aspirations However, if not managed properly, loans can often become debt traps that ca destabilize you financially. In India, many salaried individuals depend on loans to fulfill their dreams or manage expenses. BankBazaar’s Aspiration Index 2024, a annual survey that interviewed over 1500 salaried individuals aged 22–45 highlights that indebtedness is on the rise, with more Indians relying on loans fo basic needs, such as education and medical emergencies It also indicated that only 13.4% of working individuals are living debt-free, a compared to 19% in 2022. Stagnant incomes combined with rising inflation ar driving more people to borrow for everyday expenses. If you are among the man Indians currently under debt, let’s explore some strategies to help you manage it effectively and fast-track your journey to becoming debt free. Always keep track of your debt Be aware of all your existing debts, including credit cards, loans, and unpaid bills To do that, review the EMIs you’re servicing, interest rate you’re being charged and how much you have repaid. Prioritize high-interest loans like credit card debt to reduce your total interest outgo. Make scheduled or minimum payments o other debts and try clearing short-term loans to reduce your debt faster. Create a budget and spend wisely to save more Make a budget and allocate funds for essential expenses, debt payments, an savings. This will help you increase your savings which can be directed towards loa repayments. Track your income and expenses to identify opportunities for saving For example, cancel unnecessary subscriptions or cut down on eating out a frequently. These small lifestyle changes can help you save more money to pay of debts Prepay your loan Prepayment is a simple yet effective strategy to reduce debt. Use bonuses windfalls, or surplus funds to prepay loans. If you have a home loan, try to prepay at least 5% of the outstanding amount annually but do check for prepaymen penalties beforehand. Weigh the potential interest savings from prepaymen versus the penalty you may be charged to decide what is best for you. Also evaluate prepayment savings against potential gains from investing the surplusfunds. Lastly, ensure that prepayment doesn’t compromise your emergency fund or other financial goals Consolidate your debt If you have multiple debts, consider consolidating them to simplify payments. Debtconsolidation loans are an ideal option for combining multiple debts into one at potentially lower rate which can help you save on interest and EMI payments Before consolidating, compare the processing fees with the pre-closure charges o your existing loans to determine which is more cost effective Opt for balance transfer or refinance If you are servicing a high-interest loan or debt, consider a balance transfer to sav on interest payments. This option is typically available for loans and credit car debts where the outstanding balance is transferred from a higher interest rate to lower interest rate with another lender. Refinancing to a lower rate loan ca reduce repayments and shorten your loan term. However, always check th balance transfer processing fees before committing or consider negotiating wit your current lender for a lower interest rate Avoid taking on new debt If you are currently under debt, avoid taking on more debt. Prioritise paying of existing debts by creating a repayment plan and cutting down on unnecessar expenses. Only borrow for genuine emergencies, and choose low-interest option wherever available Easy EMIs and discounts are tempting but can lead to unnecessary spending an financial strain. If you have recently taken loans, ensure that your EMIs don’ exceed 50% of your monthly income. Effective debt management require discipline, planning, and patience. Be consistent in repayments to regain financia control and get rid of debt. (Adhil Shetty is the CEO of BankBazaar.com)
