Personal Finance Do’s & Don’ts: Debt Management

“What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?”

~Adam Smith


Many of us fall into the debt trap unknowingly. Living paycheck to paycheck can be stressful. If we don’t learn to control our debt, it will control all our financial decisions. Here are a few dos and don’ts for debt management.

The Do’s

Pay your EMI on time

No matter how tough it seems, paying your dues on time is crucial. When you miss or delay a payment it affects your credit score. To make it worse, you fall deeper into the debt trap. Missing a deadline means you pay more interest in the long run. Banks offering loan moratoriums aren’t forgiving EMI payments. You end up paying a lot more in the long run.


Have a debt management plan

You should have a repayment plan from the day you take a loan. Many of us have more than one loan to deal with. Those deep in debt need to choose between the avalanche method and the snowball method. In the avalanche method, you tackle high-interest loans first and then come to lower interest rate loans. In the snowball method, you overcome smaller debts and gradually gain momentum to overcome bigger ones.


Set A Borrowing Limit

It can be tempting to spend on credit, or you may have easy access to loans. Having an overall borrowing limit ensures that you are comfortably positioned to meet your debt obligations. Your liabilities are manageable if they are below a certain threshold. Financial stress arises from crossing limits.


The Don’ts

Neglect Saving

We tend to compartmentalise saving and debt management. In reality, they go hand in hand. One shouldn’t come at the cost of the other. Based on the market cycle, sometimes it’s more worthwhile to save and sometimes it’s more worthwhile to prepay loans. Even in a tight spot, there should be some level of long-term saving.


Borrow to close loans

The surest way to delay financial freedom is to borrow more. Only in certain extreme cases does debt consolidation work. In most cases, sitting down with a financial planner or debt management professional could effectively solve the problem. Refinancing may be a better alternative than debt consolidation.


Catch Financial Anxiety

Dealing with debt is daunting. At times, the bills and EMIs pile up like a mountain. There’s no money left to spend on yourself or save for a rainy day. Financial anxiety affects your mental, emotional, physical, and financial health. Remember there’s always a way out. Becoming debt free is a step by step process. It doesn’t happen overnight. Every achievement is worth celebrating.


“Success is not final, failure is not fatal: it is the courage to continue that counts.”
~ Winston Churchill

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