A dream home, your favorite car, saving for college or even your favorite phone are all things which everyone wishes to have one day. And all of this requires money, which, if not used judiciously, can derail these plans leading to debt.
Debt often leads to snowballing into a debt trap, and there are tips with which you can master the art of debt-free living and achieve that zen mode. Here are three tips for mastering the art of debt-free living.
Budgeting is one of the most common Indian household habits. Going back to the basics and perfecting the art of budgeting is the way forward.
A guide that reminds you of when to stop spending or where to draw the line will help you not overshoot your budget. For example, calculating your income and expenditures and then defining your budget accordingly.
Another thing which you need to be mindful of while budgeting is controlling your spending habits. Identify your needs and wants and buy products when you have the purchasing capacity for them. And if you wish to buy something special, plan it beforehand, start saving for it and then purchase it.
Remember staying within your budget is the first step to leading a debt-free life.
Setting aside 20% of your in-hand income for savings is essential. If you have existing debts, set aside 5% of your savings to clear off those debts faster.
You can track your debts on the OneScore app, which lists down all your credit accounts and their statuses. Also, you can check and track your credit score from CIBIL and Experian on the app to know how well you are managing your debt.
Setting up features like auto-debit will ensure you make your payments on time. But remember that these payments shouldn’t go from your savings and should be included in your expenditures when creating a budget.
Never use your savings unless it’s an emergency!
The mantra of debt-free living starts with the three Ps - Prepare, Prioritize and Pay!
If you have existing debts, prepare a list of them. This will help you know how deep you are in your debts. When you do prepare a list, don’t just list the amount but also include your EMI, tenure, interest etc.
Once you have a list of your debts, you now prioritize your debts based on the type of debt. For example, a home loan is considered good debt, prioritizing paying your home won’t be beneficial and practical considering the amount, tenure and EMI associated with it. Instead, prioritize debts which are short-term, faster and easier to pay.
When paying your debts, focus on paying off high-interest debts first. Higher interest rates mean you are paying more from your pocket. However, since higher interest rates come with higher EMIs, paying off these debts will substantially ease your pocket. These include credit card bills, personal loans, instant credit facilities, etc.
These three tips will help you in mastering the art of debt-free living. Also, develop the habit of checking and monitoring your credit score regularly. At times, incorrect loan entries which you might not have taken might appear in your credit report (Also read the different types of errors that might be impacting your credit score). And you get to know about it only when the financial institutions call you to settle these loans. This impacts your credit score and can add to your debt without your fault.
You can keep track of such activities by regularly checking your credit report. And if you come across something like this, raise it with the respective credit bureau which can help you solve it in a timely manner.
- OneScore , July 27, 2022