Top 9 ways to repay debt

People and businesses take on private debt because they want to buy something today and pay for it in the future. For example, buying a home or factory with a loan gives people access to a property before they generate the income to pay for it, and in this case the building itself can be used as a security to be seized if the borrower does not repay the lender. People on low income needing to borrow for current consumption, like food can rarely offer any security, and with such a high risk of bad debt. The rates of interest on so-called loans can be massive.

Debt often gets a bad name but nearly all innovation, art, medicine and food production requires upfront spending before income can be achieved. And it's debt that can help people without wealth to create some. 

Today we discuss top 9 ways to repay debt:-

Create a budget:-

The very first step to solve the debt problem is to establish a budget. This gives you a clear-cut idea about your income and expenses. You need to start segmenting each expenses and zoom it further to identify where all you can cut expenses. This will favor you to scale back on your spending and organize extra funds which can be used to clear your debt.

List out all your debt:-

Second step is to point out all your debts in an order. It could be based on the size of the loan (balance principal payable) or the cost of the loan (interest rate) or on the basis monthly commitments (EMI). This will give you an overview on how to prioritize your repayment

Apply different repayment strategies:-

Once you point out all your debts, you can follow different repayment strategies to pay off your loan. The common ones are:

Avalanche method

In this method point out your debts from highest to lowest by interest rate. You may pay the minimum monthly commitment on each, then allocate as much extra as you can each month to the one with the highest interest rate. This method favors you to save the most money on interest. 

Snowball method

In this method, you need to make it a priority the smallest debt first irrespective of interest rate and initiate clearing the smallest one first. You need to pay the bear minimum monthly commitment on each one, except the smallest. Next step is to go on to the next smallest debt. By this way you are likely to gain momentum and seeing the loan basket disappear for good.

Use Balance Transfer:-

This feature will help you gain the benefit of switching into a low interest rate market from an existing high interest rate loan. Some financial institutions even give the feature of free balance transfer which will favor you to reduce the cost of loan and save more, which can be allocated into principal of the loan for a faster loan closure.

Dedicate your company bonus:-

If you are an employee who receives yearly bonuses or on half yearly basis, you can allocate that for your loan closure plan. You need to be also careful about your impulsive temptation to spend those bonus on luxury items or vacations. You are the one who has to weigh your financial situation versus impulsive spending.

Sell unused household items:-

One tends to have lot of household items which is hardly used. For example gifts received during birth of your children as children have outgrown or gifts received during your marriage and has become old etc. These can be sold and the amount can be allocated for paying off debts. You could use quikr.com or olx.in for that.

Review and change your habits:-

If you have taken loan and deep diving in that, identify that it is your spending habits or impulsive buying that got you into this situation. Whenever you feel like following the same habit and wants to do an impulsive buying, think again and realize whether you really need it now or not? Or is there an alternative to it?

Set benchmarks and gift yourself:-

You need to set a target for paying off your loan and whenever you have achieved the milestone set by you, reward yourself with a gift like sign up for a hobby that you like etc. This will motivate you to set higher benchmarks and follow your debt pay off strategy as per your plan. 

Discipline :-

Of all the above, this is the key thing which needs to get you going. Once the plan is set, you should follow it rigorously and review your plan at regular intervals to make sure that you are on track.