We have seen the dark side of a debt trap. We can understand the emotional turmoil that one goes through. A Debt trap, at an early stage in life, is normally triggered by a combination of credit card debt, personal loans, car loans or just borrowing from friends and family. The debt starts to keep increasing each month, as you struggle to pay just the interest and the minimal principal back. We believe the following 4 steps can help you in getting out of the debt trap.

1. Commit to coming out of the debt trap:

  • It really starts with a commitment to yourself that you will work towards getting yourself out of the debt trap. Having the belief and setting a realistic timeline to get out of the trap is the first real step.
  • Speak to people who have done it, or are in a comfortable financial position. Even just reading up on this subject will help.
  • Set a realistic timeline to get out of the debt trap. It could take a year, maybe even more.

Life is far better on the other side and that comfort should be your driving force.

2. Manage your expenses better:

Have a hard look at your expenses and work towards making sure your expenses are less than your earnings. This requires some effort and is hard for everyone. Download your last 6 months bank statement, credit card statement and calculate your total expenses. Now comes the hard part – you need to start optimising your expenses. This may require you to

  • Eliminate some of the regular expenses which make no difference to your life. You will be surprised at the options you have.
  • Step down on your lifestyle a bit and thanks to the internet, you can always find some good options which are cheaper. Why not a cheaper (but equally capable) phone, instead of the expensive one you want to buy. Small things like changing your mobile plan helps. Very rich people have a habit of spending only on things they need, and not what they want.
  • Quite often, you are in a friend’s company who forces you to spend more than you should. Skip a couple of invitations from those folks. There are cheaper ways to have a good time in life.
  • Sell some assets if you have to or ask the help of family members.

Ensure your overall spending is less than your income, with some money remaining.

3. Systematically reduce your debt:

With the incremental remaining funds, systematically reduce you borrowings. Start with the high cost borrowing like credit cards. Try and reach a stage where you are clearing your credit card bills at the end of each month – actually, don’t just try, if you are really committed, just do it.

  • Do the same for personal loans and other such borrowings. For loans such as car loans, do let the term pass and make sure you don’t stretch yourself once again.
  • You should target reaching a point where your borrowing is nil.
  • Apart from your home loan, there is no point in having any other borrowing.

4. Finally, from being a borrower, become a saver. Start investing:

  • Open an investment account. Instead of you working for your borrowings, let your savings start to work for you.
  • Set aside some money for emergency needs. Normally the emergencies are the ones which get you into debt. This can be in liquid funds. 
  • Start saving for the long term and for key goals in life. For longer term savings, invest in equities or equity mutual funds.

We wish you the best in this journey. Having seen this in real life, one thing we can confirm – The other side is far more beautiful.