This statement has high meaning in our life. A large debt make you more stressed, sometimes you are threatened and you no longer can take higher risk. You are always worried about your family financial future as uncertainties in employment can jeopardize your debt obligations. But many a times the concern comes true as some of your financial decisions go wrong. You probably borrowed money which was always beyond your means and so you failed to repay it.
The situation aggravates to such an instance that it leads to a debt crisis where there is a huge mismatch in growth of your income and debt you have piled up. What required is than an immediate solution. But it’s not easy. If you are in debt crisis it means you don’t have money to give you instant solution to your problems.
Here are steps you should take to ensure you can come out from debt crisis and do not make the same mistake in the future:
Identify the Problem
Without knowing how you got into a debt crisis it’s difficult to decide a solution. So the first step should be to identify the root cause of your problem. This will require a detailed analysis of your current situation which includes your networth, your earnings, expenses, liabilities, etc. This analysis will tell you where was the mismatch which landed you in this trouble.
The next part of your analysis should include analyzing the debt. When did you avail it, was interest rate too high, how you planned to repay it and why did you reach a situation where the repayment became difficult – are some questions which should get answered to know exactly the root cause. Then questions like what is the payments due now and what is the total amount required to clear your debt will give you your total outstanding liabilities today. If you analyse on basis of such questions you probably will get a clear and complete picture of your debt situation.
Once you have identified the root problem of your debt crisis the next step is to search for probable solutions which can help you in coming out from the crisis. While identifying these solutions you should remember that you do not leverage again for paying your existing debt which will put you into a more difficult situation. This search will tell you whether you will be able to repay at one go or you will have to look for repaying in installments. Here are few options which should be explored while creating a list of probabilities:
1. Borrowing– While in debt borrowing from friends/relatives etc. may not be a bad proposition. Whether you borrow it on interest or as a friend will depend largely on your relations. Many a times your relationships are such that you can borrow for a specific time period without any interest from your relatives. A help in such instance will do good to ensure you do not land up in another soup. But do remember that money is a tricky issue among relations and so your credibility need to be maintained.
The other options for instant money is loans against your insurance policies or against gold jewellery etc… .. In emergencies these short term loans can be helpful in providing funds to repay your debts fully or partially.
2. Increase Earnings: One of the other solution is to increase your earnings so that you can get more money just to repay your debts. For this you may have to work overtime to get those extra earnings. You may have to even forego your personal life for some time. But if its required and a viable solution avail it.
3. Cut Down Expenses: You are in debt and so no more you can afford to spend money lavishly. You will have to cut down on your expenses drastically to ensure you can save as much as you can. Work on reducing them. Pen down a list of your expenses and see where you can do maximum. If the crisis is deep you might have to bring your lifestyle down to ensure you can reach those required savings. You might have to take your own lunch to office, from your own car you might have to consider a pool car, deferring your holiday trip etc… are such expenses which can be cut down to enhance your savings.
Select A Solution
Once you are aware of the probable solutions you need to make a choice which is appropriate for your situation. It can be either one or a mix of multiple solutions to let you come out from the debt crisis. For e.g. You might not be able to repay your entire debt in one go. In that case you will have to negotiate with company to repay some at this instant and rest in possible EMIs in next few months. For this you will have to cut down on your expenses to ensure you can bring in those savings to repay. Whatever solution you choose it will come harsh on you for few months. Make a choice and get set go.
Improve Your Behavior
In most cases the probable cause of the debt crisis is your personal finance behavior. Unless you change it there will always be a second probability. Most importantly your behavior gets reflect in the Credit Report. Here is what you should do to bring in discipline within yourself:
- Stop Using Credit Cards: If your debt crisis aroused from credit cards then your first step should be to stop using them. If you stay away from them for a while it will do good for you. Rather start utilizing your debit card so that you always spend only what you have. This will ensure you never go overboard on your spending .
- Keep Track of Expenses– One of the main reason of falling in debt crisis is that you did not tracked your expenses. i.e. where and what you were spending. A budgeting does a wonderful job in bringing your living within your means. So as you repair your wrong doings, start tracking your outgo so that you do not commit the same mistake again.
- Check Your Credit Report: Your credit report from CIBIL is a proof of your credit behavior. It will show you where you have been making mistakes. If you check this one report at regular intervals you will have a good understanding how you are fairing on your debt management and can take corrective actions at right time if needed. Hence keep checking your credit report periodically.
Managing your debt is an integral part of your financial well being. Not all debt is bad. There are good loans too. But you need an understanding to ensure you do not add bad loans in your financial basket. More important is to avail any loan within your means and utilize any credit only if you are confident you can repay from your current income. Do not buy credit on assumptions that growth in your income will be good enough to repay it. There are job uncertainties. Lastly, If you are in a debt crisis evaluate options and accommodate changes in your lifestyle to come out from it. Take counseling from a right expert if you failed to evaluate yourself.
What are your views? Did you or your known went through such crisis? What more options you can think?
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