Debt is not something that anyone wants to deal with, however, it is a reality that many have to face. Between costly medical bills, urgent car repairs, sudden job loss, or loans to pay for school or home renovations, debt can quickly accumulate.
Many people think about using their savings to repay their debt, but this is not always the best approach. It looks like a quick fix at the time but depleting your savings can create more financial stress in the future and leave you vulnerable if an emergency expense comes up. This is where financial planning becomes more important.
By making small changes in your financial management habits, you can make smart decisions to pay your debt while keeping your savings intact. Having said that, let’s discuss four recommended strategies to help you pay off your debts without having to use all of your savings.
1. Modify your spending habits
Create a realistic budget and monitor your expenses. This will help you understand your spending patterns and where you can cut back.
Try not to overspend on eating out every day or paying for subscription services you barely use. You can negotiate your bills, such as cable or internet services, to get deals at a discount. Another helpful tip is to spend money on essentials and delay non-essential purchases until you pay off all your debts.
2. Open a savings account with a high interest rate
With high interest savings accounts, you get to earn better interest rates than regular savings accounts and boost the compounding effect. The more interest you earn, the more compounding occurs, resulting in a snowball effect on your savings account balance.
Choosing from one of the highest interest rate savings accounts will also help you build an emergency fund for urgent expenses, such as medical bills or car repairs, without having to rely on credit cards or loans in the future.
3. Consolidate your debt with an instant personal loan
If you have multiple debts to pay every month, a personal loan for debt consolidation can help. By consolidating your multiple debts into one payment, you can simplify your debt repayment process. It eliminates the need to track different loan terms and Equated Monthly Instalments (EMIs), and you can focus on repaying one loan with a single interest rate.
List down all your existing debt and their amounts first. This will help you estimate the right loan amount and pay off debt without overborrowing. After the calculations, look for a personal loan with favourable terms and interest rate.
4. Open a bank account separately for loan repayments
Create a bank account separately for loan repayments so that you don’t use loan funds accidentally or mix them up with personal funds. Choose a bank that offers a competitive savings bank interest rate with other benefits such as minimum balance requirement and doorstep facilities. This way, you can save more money for loan repayments and keep up with your debt management strategy.
To wrap up
It is important to not use all of your savings to repay debts. Instead, aim to pay off debt and, at the same time, keep aside money for emergencies, retirement, and other important goals.
Once you become debt free, you can contribute the same monthly amount previously used to pay off debts to build your savings aggressively. Remember that becoming debt-free is just the first step towards financial security. You should also save and invest early to get more stability, freedom, and security for yourself and your loved ones in the future.