Debt is not the end of the word. When trapped in huge debt, many people tend to give up. That is not a solution. There are ways to turn the tide and come out of the debt traps. Here are 5 immediate and stringent steps that need to be taken to avoid discouraging debt traps.
1 – STOP BORROWING MORE
People tend to borrow from different sources to cover their existing debts. Avoid taking out too many additional loans if you already find it hard to pay back. Ideally, all of your EMIS and credit card payments should total not more than 40% of your take-home earnings. If you exceed this limit, you will strain your finances and put yourself in a challenging position.
2 – DON’T PANIC
It took time for you to get into this debt trap. Give yourself time to recover. Relax and take a toll on the situation to determine how much you owe and to whom. Having a clear picture of the debt situation will help you understand the priority of repayment. You may assume that leaving invoices unread, avoiding phone calls from creditors, or ignoring bank and credit card statements will help you relax. But, in the long term, denying the truth of your circumstance will only make matters worse. So face the situation boldly without panic.
3.MAKE A PLAN
Now you know where you stand. It is time to make a conclusive plan to get out of your debt trap. The first step in creating a plan to manage your financial troubles is to keep track of your income, debt, and spending for at least one month. Make a list of all your due invoices, installments & fines. Make another list of individuals to whom you owe money. Make a plan on which one to repay first and fast. Debts with high-interest rates and can invite more considerable penalties needs to be paid off first.
4.IMPLEMENT DEBT SNOWBALL METHOD
Put all you have to close the smallest debts first. Clearing that debt will give you a feeling of relief and will pump confidence in you. Now with revived vigor, you can concentrate on the next more significant debt.
The snowball strategy, popularized by author Dave Ramsey of “The Total Money Makeover,” prioritizes your most minor bills first, regardless of interest rate. Except for the lowest, pay the minimum balance on each of those other existing debts.
5 LEARN FROM YOUR MISTAKES
Last but the most crucial step is to learn from your money mistakes. You can’t learn anything from an error unless you acknowledge it. Recovering once from a debt disaster is not a license for you to repeat them. Don’t consider yourself to be a comeback king. The learning from the episode should make you more humble, careful, and practical in making your money decisions. No one is immune to making mistakes – after all, we are human! But Make a deliberate effort not to repeat those mistakes in the future.
We wish you a debt-free money journey even during these challenging times.