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7 Best Ways to Clear Off Debts Quickly

Owning a loan for a long time is not a good idea as the borrower will end up repaying higher amount than whatever the principal amount he or she had borrowed.

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Owning a loan for a long time is not a good idea as the borrower will end up repaying higher amount than whatever the principal amount he or she had borrowed, thanks to the higher interest rates which makes the total repayment amount more costlier for the borrower.

 

Planning and executing the plan plays a very important role to clear off debts. Irrespective of the amount of debt, everyone has to manage their debt in one or the other way to pay it off quickly by keeping up with your payments and making sure that it does not get out of control. If in case, you have a large amount of debt, then you will have to put in some more extra effort to pay off your loan amidst juggling between payments on the debts which you are not currently paying.

Most of the people will be looking out for ways to pay off their loan amount in one or the other way. A few of the options as to how debt can be cleared off quickly is listed below, take a look at it.

7 Best Ways to Clear Off Debts Quickly

What is a Debt?

The term debt is a financial word used for the amount of money borrowed by one party (borrower) from another (lender). Debt is also known as loan or mortgages. It is used by many individuals and corporations as a means to make large purchases which otherwise they cannot afford under the prevailing normal circumstances. The debt arrangement involves the permission to the borrower to borrow money under a preset condition that it has to be paid back along with interest at a later date.

With the household debt in India rising at an alarming rate, one has to look out for ways to reduce the debt which will help the borrower to come out of the vicious cycle of the debt trap. The rising household debt has touched around $300 billion in 2018 compared to $120 billion, a decade ago in 2008.

Though the rising household debt has boosted the consumption currently, in the long - run, it will harm the economic growth of the country.

Let's explore the ways which help to clear off debts quickly.

1. Regular Monthly Payments

1. Regular Monthly Payments

Making prompt monthly payments will help to save oneself from late penalty fees and higher interest rates. If in case, you do not have enough money to pay the complete bill amount at least ensure, that you make minimum payments on time. This trick holds good especially for credit cards wherein the interest rate charged on the cards is as high as 2.5% or even more monthly and in some cases, the annual interest rates on credit cards even touch 40% or so.

2. Make a list of your Income and Debts
 

2. Make a list of your Income and Debts

Gather all the data on the bill statements be it for loans, credit cards. Check your loan statements and check for accuracy, identify all the recorded entries carefully and find out the outstanding loan amount which is yet to be repaid. Now fix a time frame within which you are planning to pay off the loan.

As you will be aware of your take-home pay, you will have to include all the items of expenses including, grocery, medical bills, utility bills, children's education fee and so on before deciding on if you can pay more than the existing equated monthly instalment (EMIs) or earn more money to repay debt early.

3. Lower Interest Rates

3. Lower Interest Rates

Some of the banks in India offer loans at an attractive interest rate compared to others and hence transferring the loan from the bank which offers higher interest rates to the one which charges a lower rate of interest will also help the borrower to repay the loan much earlier.

For Example: If a salaried individual has taken a personal loan of Rs 1,00,000 from Axis Bank which charges an interest rate in the range of 12% - 24% per annum compared to SBI which offers interest rates ranging between 11.50% - 13.50% per annum. It is better to transfer the loan from Axis Bank to SBI as the interest rate on loan amount will come down as so is the total loan repayment amount by the borrower.

4. Build an Emergency Fund

4. Build an Emergency Fund

All most every individual will be aware of an emergency fund. It is advised for the borrowers to build an emergency fund with a part of their income before they begin to pay off their debts as this fund will come in handy to meet any kind of unexpected bills or expenses which could pop up in future. Some of the investors indicate that the emergency funds should be equal to at least 6 times your monthly net salary amount.

5. List All Bills

5. List All Bills

Listing out of all the bills beginning from smallest to largest gives you a clarity of the interest rates charged on them. After listing, classify them accordingly based their interest rates and in the order starting from highest interest rates and move towards listing out the one which carries lower interest rates. It is advised to pay off the debts which have the highest interest rates first as this will help you to reduce the loan amount in the future. Also look out for tax benefits, if it is a home loan. The home loans in India comes up with a tax exemption of up to Rs 2,50,000 per annum on the interest paid amount.

6. Prepare a Monthly Budget to Plan Expenses

6. Prepare a Monthly Budget to Plan Expenses

Having a budget helps individuals to ensure that they have enough money to cover for the full month's expense. Plan far enough in advance and you can take the required action at the earliest if the situation looks like you will not have sufficient money to pay for your coming month's bills. Preparing a pre-planned budget helps you to minimize your unwanted expenses which in turn will build extra money and the same can be utilized to pay off debt faster. It is very important to stick to your budgeted plan to achieved your goal to clear off loans at the earliest.

7. Earn more Money

7. Earn more Money

Another way to quickly pay the debt is to earn more money. One can work for extra hours and earn a part-time job in addition to the existing one or can search for a better job which pays you better. By increasing the income, one can pay off loans and clear it within a short duration. There are many ways to earn a decent part-time income along with your regular job.

About the Author

Archana has been covering investment planning and personal finance for more than two years.

Read more about: debt loan
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