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Re-paying your loans and managing your debt: These six steps can help you

Paying bills on time is of utmost importance when it comes to debt management

November 15, 2021 / 10:20 AM IST

A recent industry survey revealed that nearly half the Indians are fine with taking loans for purchasing big-ticket consumer goods such as refrigerators, TVs, and mobile phones. Hence, debt is not an atypical financial state to be in and must not always be looked at with a negative lens, because, in many cases, it can help you to achieve financial stability.

However, debt must be managed well in order to minimise its negative impact on personal finances. Debt can spiral out of control if it goes unchecked and this can lead to serious consequences for your credit score. Having bad debt can also impact a person’s ability to get a job or rent an apartment, which in turn leads to further financial instability. In order to avoid such a vicious cycle, there are several ways through which debt can be effectively managed.

First and foremost is to always secure your loan from a credible and reputed financial lender. Often dubious players lure customers with attractive schemes and later during repayment, the customer realizes the scam of hidden charges and ambiguous terms and condition which makes it difficult to handle the debt. So opt for lenders who have clear repayment policies, clarity on fee levied and offers terms and conditions which are customer friendly, because in case of any unprecedented event such as the pandemic, there must be scope for the lender and burrower to be flexible with the debt payment.

Ways to manage debts effectively

While debt management isn’t a perfect science, there are definitely some practices that are steeped in conventional financial wisdom. Here are six steps that can help to embark on the path of debt management.


Organize your debts

Organizing is the key to streamlining most things in life, and when it comes to finances it’s almost critical to staying on top of things. Making a list of all your debts replete with information about tenure and rate of interest. Such a comprehensive list will help you to prioritize which debts are the most urgent in terms of payment dates. Once such a list has been made, it can help to prioritize payments and avoid defaulting on deadlines and penalty fees.

Paying bills on time

The power of this simple financial hygiene practice is largely underrated. Paying bills on time is of utmost importance when it comes to debt management. Late payment usually involves some form of penalty fees and this can eat into your income that you could otherwise spend or save. Missing payments also negatively impacts your credit score and hampers your ability to make future payments. Essentially, it is a bad habit that can lead to an unending trap of mounting payments. A good rule of thumb is to first strike off all bill payments, whether utility, credit or loans the minute you get your monthly income - thus giving you a better understanding of the actual sum you have to put aside for savings, investments and any other spends you have in the month.

Devise a strategy

There is a two-pronged approach involved here. One can either pay off loans with the highest interest rates first and subsequently save more money over the long run. The other strategy involves paying off the lowest amounts first in order to keep up the momentum and track progress over time. Both strategies have their pros and cons, the important thing is to pick one and stick with it.

Also read: Why over-engineering your personal finances won’t make you wealthier

Have an emergency Fund

The old adage about saving for a rainy day is still in currency because life is unpredictable. This is why it is recommended to have a small corpus of funds for emergencies such as hospitalization, accidents etc. The pandemic has been a stark reminder of how job losses and sickness can happen to anyone. Hence, we must always be financially prepared for such contingencies. A good way to calculate this would be to have a reserve of six months of your total expenses as part of an emergency fund.

Consolidate your debt with a loan

In case of multiple loans with varying tenures and rates of interest, it is possible to consolidate it into one single loan with lower interest. Such a move can help to streamline multiple payments and deadlines into one comprehensive payment strategy.

Save, Save, Save

This monosyllabic word is the key to managing debt. In addition to paying off debt, which can give relief, creating healthy savings that can grow through investment schemes is important to secure a financial future.

Debt management, if done right, can lead to striking of a robust balance between earning, saving and creating wealth for yourself and your family in the future.
Ranvir Singh is Founder and Managing Director, Kissht
first published: Nov 9, 2021 10:10 am

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