by Life Hacker

It’s a good idea to prioritize the debts to which you are going to apply this extra money. Do you have debts that are past due and the creditors are hanging out on your door step demanding your first-born?

If you are struggling hard with a long standing debt of home loan, car loan and your credit card bill among other pending bills, it may be hard to come out of this vicious cycle of debt.

Well, you are not alone. Millions of people in this world are in debt situations, trying to figure out how to get the financial freedom.

There are ways for debt management and you can get rid of your debt fast and here are some tips to help:

1. Stop increasing your debt:

First and the most important thing to control your debt are by stopping them to increase.

If you have credit cards that are maxed out, either destroy them or get them blocked by the bank. If you have more than one remaining credit card, cut them up too. When you finish, you should have no more than one credit card.

Use only one credit card to buy “emergency things”, and things that you know you will be able to pay off in a short amount of time until you can get your spending fully under control.

2. Record your spending:

The idea of writing down your expenditures is the concept that many people find annoying at the best and useless at worst. However, this is actually your key to getting out of debt. You’re in debt because you spent money you didn’t have.

If you’re like many people, your debt didn’t come from one single huge purchase; it was trickles of spending amassed over time. Avoiding more debt starts with knowing what you are spending your money on. Each day for one month (at least), write down every paisa you spend, no matter how small.

3. Categorize your spending:

Categorize your monthly expenses into logical groups of “Must have,” “Should have,” and “Like to have.”

“Must haves” are things that will cause harm if you don’t buy them, such as food, rent, medicine, etc. “Should haves” are things that you need, but can do without for a little while, e.g., new clothes for work, gym membership, etc. “Like to haves” are things that you don’t need, but enhance your life, e.g., magazine subscriptions, newspaper, cable TV, weekly coffee with friends, data connection charges for your phone, etc.

By doing this, you’ll have a good idea of on what you are spending your money, and you’ll be able to figure out where you might need to cut back on spending. You don’t want to eliminate all of the “should haves” and the “like to haves,” but take a look at those first before making the final decision of buying it.

4. Prepare a budget:

Write down the amount you need to spend on your utilities. You can get a vague idea of this month’s expenses by looking at your previous month’s expenses. Then prepare a budget accordingly about how much money you need this month. Don’t sweat if you feel like the amount is too much. For now, just write it down.

5. Figure out how much amount you are paying to clear your debts:

Looking at your new budget, you’re going to be able to see areas where you might be able to cut back your expenses. You might also see categories where you need to increase spending. In doing this step, no one is suggesting that you come up with the amount that is unlivable. The key here is to be realistic. Are you paying money for a gym membership you never use, despite your best intentions?

What about those Rs. 50 you spend daily on your morning coffee before your leave for work, or your 5-cans-of-Diet-Coke-a-day habit? Chances are your budget has some fat that can be trimmed.

At the end of this exercise, you should have come up with a figure, a number of rupees that can be put toward debt paydown. Make a note of this figure. Day-to-day, if you don’t want to keep taking note of all your expenditures, just write down what you spend in the categories you are trying to cut back. This will give you a very clear idea of how well you are doing, and, if you know you’re going to go over your budgeted amount, it may help you decide to hold back on a purchase.

6. Figure out how much you owe, to whom, and on what terms:

Debt can often feel overwhelming because you really don’t have a clear idea of how much in debt you really are. Gather your bills, and make a simple list or spreadsheet of all the debts you have. Write down all the pertinent facts, including name of the creditor, your total balance, your minimum monthly payment, and your interest rate.

7. Start paying it off:

Take the debt paydown figure of money you trimmed from your budget in point 4, and apply it to debt repayment. It’s a good idea to prioritize the debts to which you are going to apply this extra money. Do you have debts that are past due and the creditors are hanging out on your door step demanding your first-born? Do you have debts with exceedingly high interest rates? Well, now you need to prioritize things:

First you need to focus on the debts with small amount. For instance if you have to pay home loan, car loan and a credit card bill, then start clearing off your debts with credit card first. As the amount payable on credit card is lesser than the other two and you have to pay huge interest rate, if it is not paid on time.

Secondly, clear off your car loan. Increase the amount of installments and pay it on time. It will reduce the burden of amount to be paid to bank in interest form. Then at last is your home loan – by this time you have only one liability left, which can be cleared off easily by making payments on time.

But also make sure that you pay at least minimum installments required to all the debts each month. Otherwise, the constantly mounting interest on your loan will make it tough to repay it at a later stage.

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