It is important to start 2021 by getting out of debt, which one can do for financial security and mental well-being.Moving out of debt also makes life easier and ensure that ultimately one has more cash to survive on.
With a new year comes a ton of determinations that none of us ever stick to. But it is important to start 2021 by getting out of debt, which one can do for financial security and mental well-being. But getting debt-free takes time, effort, and a great deal of planning, as experts say.
Moving out of debt would, however, make life easier and ensure that ultimately one has more cash to survive on.
Here are the tips to follow in order to be debt-free in 2021:
Draw up a list of income and outgoings
According to Nityanand Sharma, CEO and Co-founder, Simpl Technologies, firstly, one should draw up a list of their income and outgoings while managing debt.
“In the new year, begin by working out the fixed costs: those that cannot be condensed or evaded each month. With the available disposable income, it’s important to be realistic about how much one will need for day-to-day living, like going out—budgeting for things like less common expenses, such as online purchases and more” he suggests.
Rohit Garg, Co-Founder & CEO, SmartCoin advises people to cut on their expenses in order to clear the debt.
“One can review monthly subscriptions because services such as gym memberships, cable TV and online streaming subscriptions can add up quickly. Write down everything earned and spend over the course of 30 days. Evaluate the financial activity at the end of the time and if any costs seem needless, start there. For example, one can classify their expenses into necessities and try to match it to their income to avoid taking extra credit for something that can be purchased later,” Garg advises.
Automate EMI payments
Experts suggest individuals to make debt repayment the top priority by opting for an auto-debit option. Also, borrowers should try paying the outstanding amount on a credit card by the due date, and avoid rolling over the bill amount to the next billing cycle.
Follow the debt snowball method
Along with conventional money-management wisdom, Nirav Karkera, Head of Research, Fisdom asks individuals to use the debt snowball method.
This strategy helps cardholders in getting rid of the debt burden if they have multiple credit card loans. Here cardholders can prioritize the loan on the basis of the outstanding balance amount.
“Considering individuals have more than one debt account, it’s better to pay the minimum due on every account but attempt to pay off the smallest debt account entirely. Once done, it’s better to repeat the same with the new lowest debt account. Debt management should be driven by mathematics and not emotions,” Karkera opines.
Use balance transfer
A balance transfer is a kind of refinance facility, which enables the borrower to transfer the outstanding facility of one credit card to another with a lower interest rate.
“The transferee card issuer usually extends a promotional interest period that ranges between two and six months during which it levies nil or lower finance charges. This will provide a window period to the cardholder to save and also arrange funds for repayment of transferred balance,” suggests Sahil Arora—director, Paisabazaar.
Go for debt consolidation
Borrowers can also go for debt consolidation in order to clear the debt, experts say.
Cheaper loan options like personal loan can be opted for repaying credit card outstanding. While the rate of interest of EMI conversion facilities primarily depends upon the credit cardholder’s credit profile, the interest rates are usually higher than personal loan interest rates available from the same lender for the same credit profile.