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Nowadays, borrowing money has become much easier due to digitalisation. The young ones hold several credit cards and can also get easy access to personal and other loans. However, easy access to credit has significantly taken away financial discipline. It has resulted in haphazard spendings reducing the level of savings. To reduce the debt burden, primarily check the total amount of liability you owe and list down your debts such as credit card bills, personal loans, car loan, education loan, etc. Let us understand below how one can reduce the debt burden:
Know your financial conditions:
Too much debt signifies your high reliance on loans for the fulfilment of your goals or expenses. Any delay in repayment of debt will result in high penalty charges, which in turn will change your monthly income-expenditure cycle. Hence, it would help if you lowered the level of debt by decreasing the expenditures that are not required.
Deal carefully with your loans: Loans such as personal loans, gold loans, credit card loans, vehicle loans, etc., have a very high-interest rate. The ticket size of such loans is small, but one has to pay high interest. One must avoid such types of loans as much as possible. In case you have idle money or investments that give you fewer returns, you must prepay and close such loans utilising such money first.
Costly debt: Housing loans or education loans that are mostly taken for a hefty amount, their interest rates are low, but due to the long tenure of these loans, you end up paying double the amount of loan taken. These types of loans are sometimes unavoidable due to certain circumstances. They also provide you with tax benefits. However, don’t hesitate to negotiate the loan terms with the lender. Also, one should avoid any failure or delay to repay such debt. Failure to do so will cost you.
Avoid skipping any debt on the due date: Avoid any delay in repayment of the loan. One should prioritise debt repayment while making the budget—especially the high-interest loan. Skipping the loan repayment due date will increase your interest component on loan and impose a considerable penalty amount. Hence, set up an auto-debit EMI facility for the loan account to avoid any default and try to prepay the debt if possible.