4 Tips to manage your debt

Almost everyone grapples with this four-letter word in personal finance viz. debt. Though, debt can help with easy money in various occasions, but, spending your life in paying off the debt can have a huge impact on your other financial goals; and not managing the debt responsibly can ruin your credit score. So, here are some important tips to manage your debt effectively.

List down all your debts
The first step towards managing your debt is to keep a note of how much you owe to whom and all the details about the debt such as rate of interest, loan tenure, monthly installments, outstanding loan amount, etc. By listing down all your debts with details, it will be easier for you to understand which loans are going to end soon, that would, in turn, help you to have an additional cashflow surplus that can be used to either pay of the remaining debt or investing it for your future financial goals.

Determining cost of debt
Cost of debt matters a lot as this is what is going to determine how much extra amount you are going to pay on the principal loan amount. Cost of debt is nothing but the rate of interest that is charged by the lender. Now, the question is why you need to determine the cost. The valid reason for the same is that in market, not everyone charges same rate of interest for the same amount of loan. So, maybe you can get a better deal by shifting the existing loan to some other lender. While doing so it is to be noted that you would have to bear the processing fee. So, the cost should be beneficial post accounting for processing fees. This will help you to lower your cost of debt and eventually the monthly installments that you are paying. Also, it will help you to increase your cashflow surplus that you can use either to pay off your debt early or make investments for achieving some of your financial goals.

If possible, foreclose your debt
It is really important to understand that debt reduces your future purchasing power. So, hold only those debts which are necessary and foreclose all your unnecessary debts. The credit card debt or personal loans are the ones that should be foreclosed as soon as possible. The reason being the costs of both these debts are high and holding them for a long period would cost you more. So, it is better to foreclose such debts. Meanwhile, you can continue with the home loan debt, provided the loan is taken for the first home. The reason being a lower rate of interest when compared to other loans in the market and also you can claim a deduction on tax via the interest and principal amount that you pay.

Seek the help of professional
If you are confused or your debt is very complex in nature to deal with, then it is better to seek the help of a professional. A qualified financial planner can help you better to manage your debt efficiently and divert the additional cashflow to more productive use. He/she can help you to restructure the debt appropriately, which will help you to streamline overall cashflows.