Don’t get trapped in debt!

Almost every person I know accepts debt as a fact of life.

It comes in different forms, be it mortgages, debit and credit cards, overdrafts, personal loans and hire-purchase agreements. Originally, the idea behind lending credit was to help people in buying something important but which they could not afford to. Now, its just a way to buy things we may or may not need but definitely want.

Admit it…borrowing seems to be the ticket to fast growth but it does keep you stressed out about the next payment on the principal. Here are a few warning signs that should give you the hint that you are going to get trapped in debt:

1. Very less or no savings left in your account
2. Paying off your debts with a major portion of your monthly income
3. Borrowing additional money to pay off your dues
4. Paying minimum amount due on your credit card bills
5. Incurred bounced cheques frequently

If you have faced or are facing any of these situations, its time to stop before you reach the danger zone. All you need is to get disciplined and follow a debt management strategy that works towards debt elimination and financial freedom.

Make a list of your debts
If you have too many debts on your hands, clear off the high interest rate loans and those with no tax benefits first. This category includes personal loans and credit cards. Gradually, you can start paying off other loans that offer tax benefit and low interest loans like education loan and home loan.

Low cost loans
a personal loan can help you repay your card debts and makes good sense since the credit card interest rates are much higher than personal loans.

Employ your own resources
withdraw money from your fixed deposits, savings account balances, etc bearing lower rate of return to clear off any debts that are left.

Cut down unnecessary costs
save money to pay off your debts and cut down on any unnecessary expenses.

Remember that your aim is to get out of the debt trap. Avoid taking loans up to the maximum limit of your net monthly income. Measure your capacity to repay before taking any loans.

Think about all these tips and then plan your borrowings, debts and manage them effectively.