When you find yourself in high debt, it is easy to feel overwhelmed and uncertain about what to do next. However, there are steps you can take to regain control of your finances and start paying down your debt. Here are some steps to consider if you are in high debt, with examples from our multiple applicants across India:
- Create a budget: The first step in paying down debt is to get a clear picture of your finances. Create a budget that includes all of your income and expenses, and track your spending for a month to see where your money is going. Once you have a good understanding of your spending habits, you can make adjustments to reduce unnecessary expenses and redirect that money towards paying down your debt. For example, Raj from Delhi found that he was spending ₹5000 per month on eating out, after tracking his expenses for a month. He decided to cut back to ₹3000 per month and redirect that ₹2000 towards paying off his debt.
- Prioritize your debts: Make a list of all of your debts, including the creditor, interest rate, and minimum monthly payment. Prioritize your debts by focusing on paying off the ones with the highest interest rates first, since these will cost you the most in the long run. This is often referred to as the “debt snowball” method. For example, Priya from Mumbai had 3 credit card debts with interest rates of 36%, 42%, and 47%. She focused on paying off the debt with the highest interest rate first, which helped her reduce the amount of interest she was paying and make more progress towards becoming debt-free.
- Negotiate with creditors: If you are having trouble making your monthly payments, consider reaching out to your creditors to negotiate a lower payment or a payment plan that works for both of you. Many creditors are willing to work with you to help you stay on track with your payments. For example, Kritika from Bangalore was unable to make her minimum payments on her car loan, and reached out to the lender to negotiate a new payment plan. The lender agreed to lower her monthly payments, which allowed Kritika to stay current on her loan and avoid default.
- Consider a debt consolidation loan: If you have multiple high-interest debts, a debt consolidation loan may be a good option. This type of loan allows you to pay off all of your debts with one loan at a lower interest rate. This can help you simplify your finances and reduce the total amount of interest you pay over time. For example, Rohit from Kolkata had several high-interest debts, including a personal loan and multiple credit card debts. He took out a debt consolidation loan and was able to pay off all of his debts with one loan at a lower interest rate, which helped him save money on interest and simplify his finances.
- Cut expenses: Look for ways to reduce your expenses and increase your income. This can include cutting back on discretionary spending, finding a second job or taking on freelance work, and reducing your monthly bills by negotiating with service providers. For example, Neha from Pune was spending ₹3000 per month on entertainment, but after reviewing her budget, she realized she could cut that expense to ₹1000 per month. She redirected that ₹2000 towards paying off her debt, which helped her make more progress towards becoming debt-free.
- Seek professional help: If you are struggling to manage your debt, consider seeking the help of a financial advisor or credit counseling service. These professionals can help you develop a personalized plan for paying off your debt, and provide support and guidance along the way. For example, Sanjay from Chennai was struggling to make ends meet and pay off his debt ,so he reached out to a financial advisor for help. The advisor helped him create a budget, prioritize his debts, and negotiate with creditors. With the advisor’s guidance and support, Sanjay was able to pay off his debt and get back on track with his finances.
- Use balance transfer credit cards or taking a personal loan for credit card overdues: If you have credit card debt, consider a balance transfer credit card. These cards offer an introductory lower interest rate for a certain period of time, allowing you to pay off your debt without accruing interest. For example, Aditi from Hyderabad had ₹1,00,000 in credit card debt with an interest rate of 40%. She applied for a balance transfer credit card with a lower interest rate for 18 months, which allowed her to pay off her debt without accruing any additional interest.
- Avoid new debt: As you work to pay off your debt, it is important to avoid taking on new debt. This means avoiding unnecessary purchases, using cash instead of credit cards, and being mindful of your spending habits. For example, Vijay from Jaipur was working hard to pay off his debt, but he found that he was still taking on new debt by using his credit card for everyday purchases. He made a conscious effort to switch to using cash and avoided taking on any new debt, which helped him make more progress towards becoming debt-free.
- Stay motivated: Paying off debt can be a long and difficult process, but it is important to stay motivated and stay focused on your goal. Celebrate your progress, set achievable financial goals, and reward yourself when you reach milestones along the way. For example, Shekhar from Chandigarh was motivated to pay off his debt after setting a goal to be debt-free in 2 years. He tracked his progress, celebrated small victories along the way, and rewarded himself with a special outing or treat when he reached certain milestones.
- Build an emergency fund: Finally, as you pay off your debt, it is important to build an emergency fund to help protect you from falling back into debt in the future. Aim to save 3 to 6 months of living expenses in a savings account that is easily accessible in case of an emergency. For example, Manish from Ahmedabad was able to pay off his debt and build an emergency fund, which gave him peace of mind knowing that he was prepared for unexpected expenses and less likely to fall back into debt in the future.
In conclusion, if you are in high debt, it is important to take action and make a plan to pay it off. By creating a budget, prioritizing your debts, cutting expenses, seeking professional help, and building an emergency fund, you can take control of your finances and work towards becoming debt-free. Remember to stay motivated and celebrate your progress along the way.