Debt Management Tips: Debt emerged as one of the biggest problems most people in India are facing along with the emergence of rising NPA of the credit card in our country. Recently, RBI reported credit card NPAs of a mind-boggling 136% with ₹2,404 crore in March 2020 reaching ₹5,679 crore by June 2024. Most such cases end up to a situation where somebody cannot repay his debt, which places him under severe financial strain and results in disastrous consequences. However, with a little knowledge and strategic planning, you can not only clear your debts but also secure your financial future. Here’s how to manage debt effectively and regain control over your finances.
Debt Management Tips
1. Debt Avalanche: Prioritize the High-Interest Loans First
This method is ideal for people who like to be systematic and planned in handling debt. The method involves listing all debts and ranking them according to the interest rate. Start paying the debt with the highest interest rate and make minimum payments on other debts to avoid default.
That’s why it works: you’ll pay off the high-interest debt first, saving money in the long term from interest otherwise accruing on the balance. You also don’t ding your credit score with late payments that become necessary for long-term stability.
Expert Opinion: ARIA member Jigar Patel says, “You are paying less in interest if you are targeting the high-interest debts first, and it results in greater financial freedom. Making minimum payments on other loans will also keep the credit score intact.”
2. Debt Snowball: Paying off the small debts first will bring more psychological wins
Then, there’s the Debt Snowball, which actually starts with you paying off the smallest debt first, once you’ve paid off that one, then go to the next smallest, and so on and so forth until you create this flow that you’re in constant movement forward.
Why it Works: Although the debt avalanche method may be mathematically more efficient, the snowball method also has a psychological advantage. For instance, eradicating some small debts creates a psychological momentum such that the remainder of the huge ones does not seem as terrible.
Expert Insight: “Debt management is as much psychological and behavioral in nature than a numbers game. Repayment of smaller amounts first gives an element of satisfaction and makes bigger problems easier to deal with, also,” observes Patel.
3. Balance Transfer Credit Card: Eliminate High Interest Rates
A balance transfer can literally save you from drowning under tons of credit card debts. Very often, the credit card companies tend to offer new and special interest rates on balance transfers, usually around something super low like 0.99% for the first 6 months of the transfer. This gives the opportunity for one to pay the balance and not for the interest.
How it works The rolling of debt into low-interest cards will immediately relief pressure from high-interest debt, while allowing even more time to pay off the principal amount. It is truly a no-brainer when the weight of credit card debt must rest upon you, mostly, alone.
Expert Advice: Colonel Sanjeev Govila (Retd.), CEO of Hum Fauji Initiatives, says, “A balance transfer is an excellent strategy when interest rates skyrocket. You focus on the principal amount without the irritating pressure of high-interest payments.”
4. Debt Consolidation: Simplify Your Repayments
Debt consolidation is another way of taking up a loan that would pay off one or more smaller debts. Thus, all those debts become one loan. This scheme is one way to make finances simpler and sometimes lower the rate of interest thus making repayment easier.
How It Works: Consolidation can shrink the number of creditors you have to deal with and will reduce your total interest as well as make your payments more predictable and easier to manage.
Expert Tip: Adil Shetty, CEO of BankBazaar, says “Debt consolidation makes the management of finances easier. It can mean lower interest rates and a simple monthly budget when consolidating all of your debts into one.”
5. How to Handle Recovery Agents
If you have problems regarding EMI and are being harassed by recovery agents, you are not alone as you are well covered under RBI guidelines. Recovery agents cannot use any methods such as harassment, visits at home or office without permission and intimidation. If this is done, feel free to file a complaint.
It works because knowing your rights takes away the pressure. RBI keeps the recovery agents in the guidelines and rules and may even sue them in a court of law, if need be.
Apurva Bhadang, Partner at Vesta legal says, “If the recovery agents do not follow the instruction as given by RBI guidelines, then there is a possibility of complaint against it. Of course, a debtor must have a very clear understanding of his legal rights, so that in the situation of recovery, he will have his case sorted.
Take control of your financial future.
Yes, the feeling of weighing down by heavy debts, but don’t forget. All is possible, especially so when it comes toward the right way on how to manage funds. Perhaps it is first demolishing that burdened interest debt or consolidating those loans or fully acknowledging your rights to alleviate it. Anything can happen at any time. Hence, knowing and working towards gradually alleviating that burden regarding debts.
Adopting debt management would open doors to a brighter and financially free future. Proper debt management will help secure very efficient financial health while laying the basis for wealth in the long run. With these strategies, one becomes proactive today and reduces tomorrow’s anxiety regarding money matters.
Braj Verma is a resident of Rajgarh in Madhya Pradesh and is a content writer and freelancer by profession. He has a degree in Political Science from Barkatullah University, Bhopal. He has expertise in subjects like credit cards, banking, loan, insurance, political analysis and digital marketing.