How to dig out of debt
The corporate slowdown and lower credit growth had a different type of implication on the Indian economy. Bankers started concentrating on retail to drive credit growth. As a result, household debt has jumped significantly. It has increased by 1.8 times from Rs. 3.7 lakh crores in FY17 to Rs. 6.74 lakh crores in FY18. It is likely to continue in the same way as, despite such an increase in household debt, it is below the global average.
This has also created a problem for many individuals who are crushed under the mountain of debt and are finding it hard to come out of it. Like many other places where a bigger picture helps you to solve your problems while dealing with debt, you need to focus on small things. To dig your way out of this financial mess, you need to go smaller and focus on one debt at a time.
First Method
List all your debts in order of size, from the smallest balance to the largest. The debt with the lowest outstanding balance is your first focus. Once it is paid off, the new smallest debt becomes the focus until there is no more.
Second Method
This is exactly opposite to the first method and you start with the largest debt outstanding. The idea is that if you start with a higher interest rate charging debt, the early you finish, the lesser you have to pay. Continue this until all your debts are paid off.
Whichever method you chose follow these steps:
Make the minimum payment on every debt
Chose on debt to focus on early payoff
Use any extra cash you have to make dents in the focus debt
As soon as that debt is paid off, shift the focus to the next one
Repeat the process until all debt is paid off