Debt Management- Debt is a loan that needs to be repaid at a stipulated period or periods along with a fixed rate of interest. E.g., Mr. Sam might have to repay an amount of $6000 at 6% p.a. after 6 years. So, he would pay a lump sum of $8160 ($6000+ $2160) at the end of 6 years. For the sake of simplicity, we have calculated the simple interest over here i.e., $2160.
Loans can also be paid off at regular intervals as per EMI (equated monthly installments) calculated. There is nothing wrong with taking a loan but it is important to manage your debt properly. Improper debt handling can lead to a disastrous heap of loans along with a ton of stress.
How to not befall into such a situation?
What is proper debt management?
Proper debt management is key in preventing such a scenario. Debt management means planning and executing those plans to reduce the existing debt and gradually eliminate them. You can either make the proper debt management plan by yourself.
You can also seek the help of a credit advisor who could help you in navigating a way out of debt. Debt management should start the minute you have taken a loan. Do not wait for later when you are all entangled in different loans. One must not take loans in the first place unless it is absolutely necessary.
There are various types of loans:
- Education Loan
- Home Loan
- Personal Loan
- Secured Loan
- Unsecured Loan
- Car Loan
These are the important types of loans.
One must learn to live below their means rather than trying to buy all the desires of their heart using loans. There are people who might earn 10K-20K a month but want to own a phone worth 1 lac rupees. Think if such a decision is even feasible. We live in times when people purchase things not because it is a genuine need.
But because it is a status symbol. Such articles as Economics defines them, are articles of ‘snob appeal’. It is advisable to stay away from such practices. They only lead to a whirlwind of debt. No matter what practices you have had in the past, you can always change them.
Here are the mindsets that you need to have/develop to successfully manage your debt:
- SAVER’S MINDSET: Are you a saver or a spender? What is the first thing on your mind when you receive your income? Is it “how much can I reduce on expenses and save”? Or is it something like- “I need to purchase that designer bag that I have been eyeing for over a month”. You will get your answer.
- DISCIPLINE: Whether you act in a measured way or in an impulsive way with your money determines your discipline.
- BUDGET: Learn to budget your income and expenses. Understand numbers and their implications.
- MULTIPLE INCOME: Gone are those days when you could only exchange your time for money. Put in the effort to access the various passive income avenues available today like investing or even content creation.
These are the important points to manage your debt.
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FAQs
What’s the significance of debt operation?
Significance of Effective Debt operation. Effective debt operation is essential for maintaining fiscal stability and precluding the negative consequences of inordinate debt, similar to ruin, damaged credit scores, and increased stress situations.
What are the principles of debt operation?
5 principles of debt operation will get you started on the right path and keep you there:
1) Understand Your Debt.
2) Make a Budget.
3) Only Charge Long-Term Purchases..
4) Pay Off Debts with Advanced Interest Rates First.
5) Do not Be hysterical to Negotiate and Ask for Help.