Getting out of debt
Many things in life are better achieved slowly if you want the gain to be permanent! Does this remind you of another boring task – the process of losing weight? If so, welcome!
Investing and money management is a lot like eating. So is losing debt like dieting? maybe…maybe not. Is getting out of debt a little like going to a gym? Well maybe…maybe not.
However getting out of debt is also a slow process. You first need to analyse what got you there first. You were not born obese or born in debt. If you did get into debt, it was slowly. You bought yourself an item far beyond your monthly “can i afford it” . Instead of saying “I will save for it” you decided to buy it. Then it was a night out at a disco. You thought it will cost you (and your partner) Rs. 8k for the night out, but it just cost a lil more – 12k went to the card. Then you got a raise. So the car changed from a Santro to a Lancer. Never mind it gives only 4km to a litre – the fuel went to the card. Suddenly on a 6L ctc you were paying 20k rent, car emi, 2 nights out , the latest Nokia was too good to be missed. Hey bingo you now had a debt of 82k!
How to come out of it? Well many of the kids I meet these days just raid BANK PAPA and tell themselves they will never do this. NO that is not a solution. First stop the bad habits – buy what you can afford to pay cash. Carry cash rather than card – for many people it hurts to see cash go – signing is much easier. Then start leaving the credit card at home. If possible shift to a zero transfer charge, new card. Start repaying at least 2-3 times what the card company says is “MINIMUM AMT TO BE PAID”. In case you get a bonus, commission, gift, etc. do a lumpsum payment. If you are not so disciplined, cut up the card and throw it away.
Once you have controlled the spending habits, cut up the card, and made the payments make sure you stick to the new found habits.
Aniruddha
Debt is a financing option, which if one may say so is commonly mis-understood by both users and non-users alike. To explain further, first focus on the word option – did the borrower use debt as a means over an alternate option or was it the only option? when using a credit card, is the use an option (with the presence of other alternatives) or a pure leverage to increase buying power? Can debt be used to accelerate wealth creation without increasing risks? Like atomic energy it all depends on the end-use which is needless to mention dependent on the level of understanding of the user or his advisor.
Neeraj
Hi Mr. Subramanyam,
Could also shed some light on how one should plan to get rid of Home loans systematically while
– gaining from Income tax exceptions,
– Keeping inflation in mind i.e. same EMI amount won’t be that costly after 10 yrs.
– How much to pre-pay
– How to best use facilities like SBI MaxGain Home loan account (No interest on amount kept in this account)
Thanks a lot for all the previous articles.
Neeraj