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How to manage loans, credit card spends effectively

To manage loans, credit card spends effectively, you can start by getting a clear picture of the total money you owe. This can be done by making a list of all your debt.

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Last Updated: Mar 23, 2020, 10.23 AM IST
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A repayment plan must have a deadline by which he/she will be debt-free
Prafull has been careless with his spending habits and has got himself into a huge debt, which he is unable to pay off. He has multiple credit cards on which he has touched the maximum credit limits, he has outstanding EMIs on electronics purchased and has even borrowed from friends and family. He makes random repayments whenever he has money. Prafull realises he is in trouble and needs to manage the situation, but does not know where to begin.

Prafull needs to take remedial action immediately. Being deeply in debt and unable to meet his obligations will not only affect his credit worthiness but also other important aspects of life such as saving for goals and investments.

He must start by getting a clear picture of all the money he owes. He needs to make a list of all his debt, the amount due, the interest payable and other details such as minimum amount or EMI due each month and penality for delays and defaults. Having this information ready will help him plan his repayments better. He will be able to draw up his budget in a way so that the minimum monthly obligations on his debts are taken care of. Knowing what he owes will also help him make decisions like transferring the balance on his credit cards to a low interest card or to a card that is offering the option of repaying the outstanding balance through EMIs.

Next, Prafull will have to exercise discipline and control his current spending habits. He must not take on any further debt until his past balances are cleared. This includes the use of credit card. Using only cash will stop him from adding to his debt burden and limit his expenses.

Prafull’s spending and savings plan must be realistic and doable. His repayment plan must have a deadline by which he will be debt-free. It is good if he sets short-term targets for himself. Achieving them will keep him motivated and he will see his debt reduce. Living on a tight budget as he pays off his existing debt should give him the discipline to live within his income and prioritise his spending even after he has eliminated debt from his life.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
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(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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