How to dig yourself out of debt in 5 straight steps

Why is a Chit Fund company blog stressing so much on debt management, you
might wonder. That’s because we at Shanthala Chits truly believe that we have a
say in your financial well-being. We would want to see our readers and investors
manage their wealth in an efficient and systematic manner. We’d like to be a
partner and well-wisher in your road to success and prosperity.

If there is one word which can spell doom to all your carefully laid out future
financial plans – it is mounting debt. Debt in the form of credit card bills,
education/vehicle/home loans, bank overdrafts, business loans, personal loans,
gold loans. All of them can have a spiraling effect on your finances.

High rates of borrowing to start with, exorbitant penalties levied on missing an
EMI, harassment from loan collectors, public shaming of defaulting borrowers–
these are the terrible ordeals to be faced when debt goes out of hand.

Debt does not just have a monetary impact on people. It is a huge reason for
mental stress and physical ailments too. Just thinking about a long pending
credit card bill can cause one’s anxieties to rise. Today’s youth are falling into
the debt trap quite easily because taking loans seems to be such an easy and
hassle-free method for arranging funds. They don’t seem to realize the extent of
damage accruing debt can cause.

We’ve highlighted the ill-effects of debt in several of our earlier blogs too. If you
haven’t got a chance to read them, go check them out at:
https://shanthalachits.com/investopedia/
Now that we’ve recognized the deep impact of spiraling debt, let’s try and look
for concrete solutions to get out of a debt trap. We have put together 5 simple
and sure shot steps that will help you recover from your debts and build a
healthy monetary position for your future.

1. Accept the truth first – debt is not helping you, but harming you. Debt
looks easy only while borrowing, but throughout the repayment cycle, it
keeps causing trouble. First you arrange for collateral before borrowing. Then
you lose a large part of your monthly income to EMIs. And if you are faced
with some emergency situation and are unable to repay an EMI, the problem
simply zooms out of control. So, the first step to take is to make up your
mind that you must avoid debt. Then, you can set an action plan into place
and follow it.

2. List down all the credits and liabilities that you owe. Individually each
loan looks insignificant, but when all of them are added up, you realize just
how huge your monthly liabilities are. So, prepare a list and track all your
debts diligently – the EMI amount payable, rates of interest, repayment
tenure, etc. You now have a figure to work with, what do you owe every
month/year.

3. Eliminate the highest impacting ones first. It’s called the ‘avalanche’ method of tackling debt. Just by clearing off 1 or 2 of the top debts that you owe can make a vast difference to your monetary position. Because the higher interest rate loans are a bigger drain on your resources, especially if you have defaulted in between. And remember, paying off one credit card bill using another credit card is not the answer! Save from your income, forego some discretionary expenses, postpone that travel plan or expensive purchase you have in mind, reduce the number of times you eat out. Simple but effective steps.

4. It’s not a one-time exercise, keep a regular watch on your credit worthiness. Generate your credit score once in 3 months and check whether it is improving. The target credit score is to reach above 800 and go on improving. That way, you will not slip back after 1-2 quarters of good fiscal discipline.

5. Switch to alternate financial instruments. We’ve stressed this point many times that Chit Funds are an ideal alternative to debt instruments. Invest in a Chit scheme which has a 2-3 year tenure. Choose the appropriate prize amount based on the monthly payable instalment that fits your budget and matches your financial goals. Anytime you need money, you can just withdraw the entire chit prize money. No questions asked, no interest, no penalty. Now just continue making your monthly payments as before, no additional liabilities just because you pulled out the money early. On the other hand, if you reach the end of the tenure without making a withdrawal, you will earn a very good return on your investment ranging from 7-9%.

ABOUT US

Shanthala Chits has been in the business of chit funds for over 2 decades now. We are a Government approved chit fund company with a 25 year successful track record and thousands of satisfied customers. Shanthala Chits is registered under the Chit Fund Act of 1982, Government of Karnataka. We are one of the most popular chit fund houses based out of Bengaluru, known for our customer satisfaction and secure investments.

Our Chit schemes range from a monthly contribution of Rs 6000 to Rs 1,00,000 to suit every budget. You can pick a chit scheme with an appropriate monthly instalment for meeting several of your short-term financial needs. Our chit schemes are for a tenure of 25 Months.

Get in touch with us and start with an investment scheme. We will be glad to help you out with the right scheme that matches your needs.