8 Ways To Pay Off Your Debts

What is Debt?

Debt is nothing but the amount of money you owe to your lender. Whether you’re using a credit card, or have taken out a personal loan from a bank, you have to pay back the money you borrowed with interest. That total amount of money that you have to pay back is considered as debt. It’s extremely important to plan your debt efficiently to avoid any kind of defaults.

Why Should I Try To Be Debt-Free?

A high debt which hasn’t been paid can negatively affect your credit score and hurt your loan eligibility. This is also known as bad debt. This is exactly why it’s important to plan your loans and repayments. 

When you’re debt-free it means you don’t owe any money to anyone. And while taking out personal loans and credit cards has its own advantages, staying debt-free means no financial obligations.

How Fast Can I Clear Debt?

How quickly you can come out of debt depends on many factors like the amount owed, your financial situation and due date. If you’re someone who’s in crushing debt, the first thing you need to do is set a proper plan in place. This includes adding an additional source of income, considering debt consolidation, planning repayments, choosing which loans to clear first, etc. Based on this, it can take you a couple of months to years to come out of debt. 

Before you read the tips & tricks written in this blog, you need to believe in one thing – Getting out of debt is truly possible.

And it starts with commitment, a little consistency & a few changes in your lifestyle so you can become debt-free.

Just give it some time, stick to your efforts & follow these 8 steps to pay off your debts –

Also Read: The Dos and Don’ts of Personal Finance Planning

1) Make A List Of All Your Ongoing Debts

This 1st step is extremely important.

 It’s necessary to be aware of your situation because it will help you create a plan to get out of debt. While making the list, include the name of the creditor, amount overdue, interest rate and the minimum amount required.

This way, you’ll be looking at the bigger picture which will help you prioritize your repayments.

2) Repay The Minimum Amount, Every Month

One way to avoid debt is by repaying more than the minimum amount. But if you have too many ongoing debts, take it one step at a time. Start by repaying the personal loan amount on all your debts.

3) Prioritize Your Repayments

Before you prioritize your repayments, consider your monthly income, expenses, and savings.

Then, list down the interest rates, size of the debt, minimum payment required, and the impact on your credit score.

Next, choose the debts you want to repay first.

The two best ways to go about this are;

Repay the debts with the highest interest rates first, while repaying the minimum amount on all others.

This method is also known as the debt avalanche method.

It is the method where you repay debts with the highest interest rate while paying a minimum amount on all other debts.

Or…pay the debts with the lowest amount first, while repaying the minimum amount on all others.

This method is also known as the debt snowball method.

Here, you will repay debts that have low personal loan amounts while paying a minimum amount on every other debt.

4) Minimize Your Expenses

Reducing your expenses will give you more room to repay your outstanding debts.

Once you take more control of your spending and stick to a budget, you will automatically start managing your debts better.

Make a list of all the things you spend your money on – rent, groceries, electricity bills, fancy dinners, Netflix subscriptions, everything!

This will help you understand where you are overspending & cut down on everything that’s unnecessary.

5) Install A Money Management App

If you’re confused about how to get more control of your spending, there are many money management apps that can help you.

For instance, with Zype you can view all your account balances, get a visual representation of your spending & even set monthly budget goals.

6) An Extra Source Of Income Would Help

Identify extra income sources which don’t take more than 2-3 hours of your day.

Data entry, content writing, online teaching, and other such activities can turn into a source of income that is just dedicated to repaying your debts, bringing you closer to your goal.

7) Negotiate With The Creditors

Having an honest conversation with your creditor goes a long way.

If you’ve been using a particular credit card or Zype app for a very long time & have shown a good track record, talking to them could make your life easier.

You can try negotiating with your creditors to reduce your interest or debt amount.

If not, you could always negotiate to get a longer period to pay off your debt.

8) Be Patient!

Yes, repaying the minimum amount, minimizing expenses, and creating a repayment plan are all very important steps.

But you would only be able to do this with a calm state of mind.

Of all the tips mentioned before, having patience & giving it time is one of the most important steps.

Just trust the process and keep doing what you need to do, and you will surely be able to pay off your debt.

Also Read: Consolidate your Debt with Personal Loan