Q. I’m Namrata, recently employed by a software company. I find it challenging to strike a balance between spending and saving. Can you guide me in setting up a manageable repayment schedule to pay off my debts, especially credit card debt and personal loans?
Personal loans and credit card loans are both high-interest debts. If there is any delay in paying off an equated monthly instalment (EMI), you will end up paying penalties and it will also have an impact on your credit score. So, Namrata, it is very positive that you’re taking proactive steps to manage your credit card debt and personal loans.
Creating a workable repayment plan is a crucial step to achieving financial stability. Let us see how you can make this happen.
Wants are not needs
There is a thin line between what you need and what you want. Sometimes people confuse wants and needs to be the same, which isn’t true. Having a roof over your head and food on the table are examples of needs. Though your employer is providing a bus service, if you want a car to commute to work, it is a desire rather than a necessity. It is something that you can do without. Be very clear about the difference as there will be many occasions when you may need to decide on the spur of the moment before you swipe your card. Of course, if you budget and save properly, you will be in a better position to both meet your needs and also enjoy at least some of your wants.
Plan your month
Planning is an important component of almost every aspect of life at work and at play. Jot down all that you need for the month. Check if you have enough funds to buy all those. This will help you budget and keep track of your expenses. Keep an eye on your plan to ensure it is always on track. Remember, it is more than a list on a piece of paper.
Power of credit
Banks and financial institutions use credit reports to gauge your financial credibility. Your credit score must always be good. A good credit score will make it easier for you to secure a loan, get a job, buy a house and so on. Just one bad decision, like a delayed instalment repayment or maxing out your credit card, can send your credit score tumbling. It will take years to recover your credit score.
Frugal spending
Another way to save more is to spend wisely. Do a little bit of research before buying anything. Look for genuine discounts and sales; bargain for a good deal. Choose a product available at a lower price if its performance is similar to a more expensive option. It may look like petty savings but remember Rome wasn’t built in a day. Your savings will need patience and time. When your spending is under control, it will also help you avoid debt.
Lifestyle bucket
Build a small bucket of savings for lifestyle shopping. Every month you can set aside a portion of your salary and utilise that for your lifestyle shopping needs. This way you can avoid getting into a debt (credit card or personal) and stay within your budget. Don’t get tempted by the high credit limit on your card or by an increase in your salary. Use the surplus to build an emergency fund or to enhance your savings.
Avoid debt
One sure way to create wealth is to avoid debt. Debt means having to high-interest rates for long repayment terms. It can keep burning your hard-earned money for a long, long time.
Remember that creating a repayment plan is a gradual process, and it’s healthy to seek support. If you find it challenging to manage it on your own, consult a financial advisor or a credit counselling agency. They can provide expert guidance based on your specific situation.
May you be debt-free, Namrata, well before we welcome 2025!
International Money Matters Pvt Ltd is a 22-year-old SEBI registered financial planning-cum-investment advisory boutique. Please click here to find out more.
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Published: 14 Jan 2024, 11:06 AM IST
