In India, nearly 50% of millennials and Gen Zs are more stressed than the global average. According to the Deloitte survey that pointed to this number, financial welfare is the primary concern and cause for this.
Research has also revealed that Indians have started relying more on credit, with retail loans growing by a 50% margin as of March 2022 compared to the previous year. Moreover, RBI’s report says that households account for 53.8% of the total credit disbursed.
In this scenario, another key statistic deserves attention – the number of retail loan defaulters. While the auto-debit transaction failure rates were at 36.5% in June 2021, they improved to 33.2% in July, as per data from the National Payments Corporation of India.
Despite this, these high numbers should be taken as a warning. As you leverage credit to achieve your goals, make sure that you are managing funds responsibly. If not, you may fall into a debt trap, jeopardising your financial well-being today and tomorrow.
Thankfully, there are ways to work toward becoming debt-free methodically and systematically in 2023 and beyond. In fact, many make it a priority and set resolutions to clear their debt in the coming year. This is a smart choice, especially if you have become overly dependent on credit.
To that end, a look at the following easily actionable tips to start getting rid of debt in 2023.
You can start by assessing your financial obligations by compiling a list of all the loans you have to repay in the near future. Calculating your overall debt, the finances required to repay it, and how much money you have in savings is an essential step.
You can plan your debt-free journey wisely by creating a spreadsheet with all of your obligations listed clearly. Include all debts on the list like credit card bills, education loans, personal loans, mortgages, car loans and money you borrowed from family or friends.
Doing this will enable you to prioritise your immediate repayable short-term loans, leaving aside the long-term loans that must be paid off thereafter. This information can also help you better understand your financial condition, allowing you to take the next steps toward financial freedom.
Working up a realistic budget is crucial as it enables you to save money while meeting your expenses. This way you can put debt repayment on the top of your list. This also translates into cutting costs towards any big purchases that may not be necessary for you at the moment.
Consider moving to an apartment with a more affordable rent if you are living in an expensive place. Save up more by avoiding weekend trips, reduce dining out or high-end entertainment, think about carpooling to save fuel costs, and use the right credit cards that offer you cashback and discounts on things you usually purchase.
These steps can help you save significantly towards financial stability, and the amount you save can be used towards repayment. Moreover, a budget helps you remain committed to your goal of repaying debts on time.
To many, this may sound counterproductive or like you are blowing away your savings entirely. But paying off all of your small bills in full will really move your finances in a more stable direction. This is because high-interest credit may prevent the growth of your savings.
By paying off your small debts first, you reduce your total debt and free up the funds to deal with the higher debts more effectively. This could also give you a boost in confidence as you now have one less debt to deal with. Seeing the increase in your bank account when you no longer have one EMI to pay also gives you motivation.
While working towards fully repaying your smaller debts, make sure that you pay the minimum due on your other debt. This will help you chip away at debt and increase your credit score simultaneously.
A good move to get on the debt-free road is to save money for emergencies, whether it is for medical needs or repaying debt when your budget is depleted due to other reasons. You can also funnel these savings into making prepayments.
Prepaying personal loans helps you reduce the principal and thus either bring down your overall interest or your repayment tenure, both of which are big pluses.
To achieve this, make sure that you invest wisely to grow your emergency corpus. While you could be a bit hesitant to invest in the present market slump, now is also the time you can invest in instruments that may not be related to the market and offer stable returns.
Among the safer alternatives are fixed deposits, which are unaffected by market volatility and grow your funds via compounded interest. Another way to counter fluctuations is to go for the SIP route of mutual funds.
Get help to invest smartly, as this can ensure that your savings come to your aid when you need funds and thereby avoid more debt. This is also a vital step in helping you become free of debt.
Another way towards a secure and debt-free future is considering the right debt consolidation loan offered by various lenders. This way, you can pay off all your debt in one go and repay just one loan that covers all your other debts.
This helps you avoid keeping track of multiple EMIs and due dates and focus on one loan. This is also a good way to reduce high-interest debt like credit card debt and pay a lower rate of interest on your total owed.
Make sure that you carefully compare the interest rates on such loans and choose the most affordable one to boost your overall savings. You can also consider a balance transfer of your loan if you are able to find another lender who offers a lower rate of interest.
Use a balance transfer calculator to check your savings before you make this move. Ensure that the costs of availing a new loan, such as processing charges, don’t overshadow the interest savings you are likely to enjoy.
In both these ways, you can reduce your overall payments towards debt and speed up the timeline towards freeing yourself from it.
If your debt is higher than your current savings or investments, then it is best to avoid or reduce your reliance on ongoing credit during the time that you are working towards repaying all debt.
This means giving a break to swiping your credit card.
Missing credit card payments attracts a high penalty and interest and can spiral into a bigger debt than you may have imagined. So, it is best to use your debit card instead and follow a proper budget every month.
If you want to continue using a credit card to avail offers and discounts while building your credit score, be very attentive to repayment and how much of its credit limit you use. Make sure you keep your credit utilisation ratio low.
Experts recommend this to be 30% or less to improve your credit score. So, if you have a credit limit of Rs.1 Lakh, don’t use more than Rs.30,000. Also, make sure that you have set aside this amount for credit card repayment and use auto debit facilities to ensure you don’t miss this payment every month.
One of the most logical solutions when your aim to become debt-free is to talk to your lender about getting more pocket-friendly repayment terms. Negotiating a repayment plan can be beneficial since it can lower your stress and actually help you achieve this goal quicker.
This can be done by reviewing your interest rate as well as the penalties for prepayment or foreclosure. If you can get a lower rate of interest or any benefit like this, you can repay faster and easier. This will also help you build up your credit score, and help you get a better handle on your finances.
Bear in mind that while these methods can certainly work towards helping to become debt-free, they may not yield immediate results, especially if your debt is high. However, they will gradually assist you in developing greater focus and discipline for better financial health and well-being. Be persistent and patient.
You can also funnel any salary bonuses towards repayment as can also add in any extra income you earn by freelancing. All in all, prudent money management is the key to a debt-free and financially secure future.
The road ahead may seem a little challenging initially but getting debt-free in 2023 is easy as long as you consistently work toward the goal.