Posted by: Arti Bhargava on Jan 15, 2018, 11.02 AM IST
Extravagant spending has landed Vikrant in a debt trap. No matter how much he tries, he is unable to pay off his debts, which keeps multiplying as interest piles on. He has reached the maximum limit on multiple credit cards, he has outstanding EMIs on purchases made and has even borrowed from friends and family to pay off existing debt. He has no idea about his obligations and makes intermittent payments whenever he has money. Vikrant knows he is in trouble and needs to correct the situation. He has no idea where to start.
Being deeply in debt will not only affect Vikrant's credit worthiness but also other aspects of his financial life such as saving for goals and investments. To start with, he needs to make a list of all his debts. The list should include the interest payable and other details such as minimum amount or EMI due each month. Having this information ready will help Vikrant plan better. He will be able to draw up a budget in a way to meet minimum monthly obligations on his debts and keep the impact on his credit score to the minimum. He will be able to prioritise repayments, keeping the cost of delay/default in mind. 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 through EMIs.
Next, Vikrant will have to control his spending. He must not take on any new debt till his past balances are wiped out. This includes not using the credit card to make any payments. Using only cash will not only not add to his debt but will also limit the amount that he spending. Vikrant's repayment plan must have an end-date. Keeping expenses on a tight leash as he pays off his debt will give him the discipline to live within his means.