Debt is a financial tool that is vital for the economic and social upliftment of an individual. Purchases and Investments often exceed the financial capabilities of an individual however, if a financial tool like debt gets introduced, then purchasing and investment can become affordable.
Debt can be good but if not taken proper care of, it could become a problem. it’s essential to recognize that excessive or mismanaged debt can easily transform from a helpful asset into a substantial financial burden.
When debt accumulates and repayment becomes challenging, it can trigger a domino effect on one’s financial stability, personal freedom, relationships, etc.
So, managing debt is important and by understanding the nuances of how to strategically navigate through it, you can step towards removing the burdens of loans and regaining financial control. In this article, we will discuss how to get a loan, Good Debt v/s bad debt, and much more.
Good Debt V/s Bad Debt
Debt is a financial tool that when used in a good way can be very financially fulfilling but if this gets wrong, can dangerously make you fall onto the ground. This distinction of debt is necessary to understand to ensure you always are on the good side. Debt is broadly categorized into two types-
- Good Debt
- Bad Debt
Good Debt:
Good debt is typically associated with investments that have the potential to increase in value or generate long-term income. Some examples of Good Debt can be Home Loans for purchasing loan, Student Loan, Business Loan, Real Estate Investment, etc.
Bad Debt
Bad debt, on the other hand, does not contribute to your financial growth or create value over time. Some examples of Bad Debt can be Credit Card Debt, Auto Loans, Predatory Loans, Unnecessary Consumer Loans, etc.
Proven Ways of Getting Out of Loan
Getting out of a loan can be a challenging but achievable task with the right strategies and approach. Here are proven ways to help you navigate the process of freeing yourself from the burden of loans:
Loan Consolidation
Loan consolidation is a process wherein you’ll merge loans into a single loan account making it easier and affordable to manage. This simplifies repayments and can potentially reduce the total amount you need to pay over time.
The best way of Loan Consolidation is to calculate the monthly EMI amount and calculate the Loan EMI of the consolidated amount. Now, you can compare both and decide whether to opt for Loan Consolidation or not.
Pay Expensive Loan First
Prioritize paying off loans with the highest interest rates first. By doing so, you minimize the interest that accumulates over time, saving you money and accelerating your journey to debt freedom.
Follow a Budget
Create a comprehensive budget that outlines your income, expenses, and debt repayments. Stick to this budget to ensure you allocate sufficient funds toward repaying your loans each month while managing your living expenses.
Keeping your debt repayment to lower than 30% of your total income is a good budgeting strategy. This ensures that a significant portion of your income is not overly allocated to debt servicing, leaving room for essential living expenses, savings, investments, and unexpected costs.
More Income Faster Repayment
Consider increasing your income through side hustles, a higher-paying job, or freelancing. Applying any additional income directly to loan repayments can significantly speed up the process of becoming debt-free.
Do Not Take More Loans
Avoid acquiring new loans while you’re still in the process of paying off existing ones. Taking on more debt will only exacerbate your financial situation and prolong your journey to financial freedom.
Debt Restructuring
You’ll have to check with your bank whether they are willing to re-negotiate and restructure the agreement. This may involve extending the loan term, reducing the interest rate, or finding alternative repayment plans that suit your financial situation better. You should only seek Debt Restructuring as a last resort because this reduces your Credit Score.
Conclusion
Debt is a necessary evil that drives our financial ambitions. Debt comes with many benefits but it can easily transform into a formidable problem when mishandled or accumulated excessively.
The weight of debt can cast a long and suffocating burden on one’s life.
Living in a society driven by financial ambitions, the omnipresence of debt has become a reality for many.
The perpetual cycle of repayments, high-interest rates, and the looming burden can erode the hope for a brighter financial future.
The proven methods mentioned above offer a roadmap toward financial liberation, paving the way for a life unshackled by debt and a future ripe with financial possibilities.
By implementing these strategies, individuals can regain control of their financial destiny. With each strategic step taken, debt becomes a manageable hurdle rather than an out-of-hand subject.
With these strategies, individuals can craft a path toward financial security, allowing them to embrace a future characterized by financial well-being, opportunity, and peace of mind.
