Debt is not necessarily a bad thing. A mortgage can be of a huge help in achieving the goal of owning a house. It can also be useful in building wealth in case a house appreciates in value. However, it is also important to remember that too much debt can hamper the ability to pursue discerning financial goals. Kavan Choksi points out that having too low credit scores or pending bills can make it a lot more difficult for people to qualify for further credit like business loans or even car loans.
Kavan Choksi mentions a few tips that can help people to get out of debt
Debt can include credit card bills, student loans, mortgages, and many other types of personal debt. Carrying a lot of debt can be pretty stressful, and even create multiple financial hurdles. Getting out of debt can improve the financial health of a person and open up more opportunities.
Anyone carrying a good amount of debt should take the following steps to get out of debt:
- Understand debt: One must orderly review their bill and loan statements to gain a proper understanding of how much debt they owe every month. Doing so would also help people grasp how much interest they are paying on varied debts. It is vital to see to it that the monthly debt obligations and necessary expenses stay below the income. In case a person is unable to pay their important bills in time then they should try to secure more income or negotiate with the lenders.
- Plan a repayment strategy: One must identify the debt they must pay off first, rather than putting extra money towards any of the debt. People may use the avalanche method and target high-interest debt first to save a good amount of money in the long run. On the other hand, for some people dealing with the smallest debt works better as it keeps them motivated.
- Understand credit history: It is important that people check their credit score properly, and report it for inaccuracies if necessary. The credit report is quite useful in helping people to gauge how their debt is impacting their credit score. One may check whether they have a high number of late payments or a high credit utilization ratio, which basically means that they use a high amount of the debt available to them.
- Make adjustments to debt: In case the credit rating of a person allows for it, then they must go for a larger, lower-interest loan and consolidate their debts into that loan. Doing so can speed up the process of paying off the debt by minimizing the interest. People can even consider a balance transfer offer of 0% interest from one of their credit cards to get a grace period that may last anywhere from six months to eighteen months.
As per Kavan Choksi, whenever possible people should double the amount of payments they make towards the debt, especially for the high interest ones. Paying more than the minimum amount can speed up the time it takes to get out of debt.