Repaying a large amount of outstanding debt can be a challenging task for most. Understanding how you got there in the first place is equally important. Having a significant amount of debt to your name can lead you to look for shortcuts to clear it, which can end up costing you a lot more than you anticipated. While clearing debt can be tricky, options such as debt consolidation loans in India have made it a lot more manageable.
In an effort to clear debts quickly, there are a lot of mistakes you could make. Here are a few of them to keep you informed and help you address debt crisis smartly and carefully.
Paying Multiple Debts at Once
Trying to pay off multiple creditors at once is a mistake many make. Prioritise debt by employing the avalanche method. Using this method, you can clear debts with the highest interest rates first, so that you don’t incur additional charges. This can save you a lot of money and you use can use that to start paying off smaller debts.
Additionally, apply for instant personal loans to consolidate debts as they also aid in increasing your credit score. To answer the question, ‘Does consolidating debt ruin your credit?’, you should know that when you apply for a quick personal loan, your credit score will dip slightly. However, when you pay off your debt using these funds, your credit score rises again. If you are still wondering, ‘How much does debt consolidation affect your credit score?’, the answer is that while you pay your debt consolidation loan EMIs in a timely manner, your credit score continues to rise.
Personal loans offer tenor choices for more affordable EMIs. So, decide on EMIs in advance based on your financial standing and then apply for a loan that encompasses and pay off all your dues at once, so that ultimately you will be left paying just one cost-effective EMI all through the tenor.
Negating The Importance of Emergency Fund
Creating an emergency corpus is especially important when you’re trying to get debt free. This is because you cannot rule out emergencies. Whether it is a medical expense or car repairs, these emergencies can be quite costly and if you’re not prepared for it, you’re more likely to go deeper into debt. Hence, devoting most of your finances to getting debt-free can cost you heavily. A simple fix to this is to maintain funds for rainy days. This way you will always have a corpus to fall back on whenever a need arises.
Closing Credit Card Accounts
After clearing the debt of a credit card, do not make the mistake of closing down the account. Your CIBIL score isn’t just based on your ability to repay and your income. It is also based on your credit utilisation capacity and the credit limit you have sanctioned to your name. A well-managed credit folio showcasing your creditworthiness will make you seem like a trustworthy borrower from the lens of a lender. In case you are credit averse, then don’t use your cards. Just maintain the high credit limit by keeping accounts open. This will help you secure a CIBIL score of 750 or more and will portray you as a responsible borrower.
Continuing With Bad Spending Habits
When trying to clear yourself from debt, you need to put in place better spending habits and get rid of those that got you into debt. A good way to foster change is to make note of your monthly salary and essential expenses. From this, you’ll find it easier to gauge what your luxuries are and what you need to cut down on. All money diverted from luxuries to debt clearing will get you closer to financial freedom. Additionally, try and incorporate these as permanent changes as they will help keep you from acquiring more debt.
Keeping these common mistakes in mind and actively avoiding them can make debt repayment easy. If you’re wondering, ‘Is it worth getting a loan to consolidate debt?’, the answer is yes! You can use debt consolidation loans in India to consolidate your debt and make it more manageable and affordable. The Bajaj Finserv Personal Loan For Debt Consolidation is a great option to consider as it offers you loan limit up to Rs.25 lakh at nominal interest rates.
Furthermore, the flexi personal loan feature enables you to reduce your loan EMIs up to 45% by paying interest-only EMIs and repaying principal at the end of the tenor. To get started right away, simply check your pre-approved offer and apply using a customised deal.
Author Bio: Gaurav Mittal is a Content writer and he loves to write about Finance & Insurance Articles.