Tips to avoid the debt trap

It is easy to take a loan but paying it back can be quite an arduous task at times. Many individuals fund themselves trapped in the vicious cycle of debt. So, how can one come out of it? Although it may seem easy on paper, bringing about a slight change in habits such as cutting down on unnecessary expenses can go a long way in fixing your financial situation. Try to invest that same amount into reducing your debt and you will be surprised by the difference it can cause to your balance amount.

Here are a few ways in which you can reduce your debt:

— A penny saved is a penny earned: This is an extremely crucial practice you have to incorporate in you day to day life as having a record of your money not only allows you spend less on things that you don’t need but also helps you prepare a budget.

— Budgeting: Start making a budget on priority. It should include estimated money requirements for every section of your budget (groceries, books, clothes, etc).

— Create an emergency fund: Everything you are earning is either going into your debt settlement or daily expenses. So it becomes more important than ever to create an emergency fund. The reason you accumulated debt in the first place was because you had not planned for unforeseen circumstances. Having an emergency funds helps break the cycle of continuous debt.

— Create a payment planner: You need to chart out the money you currently own, including the interest you have to pay. Then, write each bills payment amount next to the due date so you would easily be able to set aside a particular amount on schedule this makes your financial planning a lot easier. If you have multiple debts then, with the help of your financial planner, you can figure out which debt to repay first.

— Pay high interest debt first: Always pay high interest loan such as personal loan and credit cards first as the longer they are due the more amount you have to pay back.

— Stop deferring bill payments: Pay all your bills on time, including the small ones like mobile phone recharge. Never delay payment on credit cards as they charge you as high as 3-4% every month. If you don’t have money, it is always better to talk with the credit card company as they might help you in restructuring the balance amount.