Debt is one of the easiest things to grow when you aren't playing by the rules of your financial plan. 
 

You could collect the debt with frivolous purchases, loans, or even necessary expenses such as hospital bills. But however you accumulate this debt, it can quickly turn into a behemoth that you don't know how or where to begin with, let alone tackle head-on. So it's important to come up with some strategies to work your way out of this vicious cycle. 
 

Here are a few ways that can pave your way out of this pit of debt - 
 

• Creating a budget & budgeting for contingencies: 
  
  

  The first step to getting rid of your debt starts with your financial plan. It involves recording your income and expenses for the month. Budget creation allows you to analyse your transactions in detail, effectively allowing you to cut down your spending on unnecessary things. It would be best if you remembered that your income is a constant inflow of money for most people, whereas your expenses are a variable outflow, and this is where it can get tricky. Remember to create a plan that keeps enough room in your budget to plan for things outside of your regular expenses. 
   

  However, this variable is sometimes outside of one's control. For instance, during a pandemic, one cannot predict if they or their loved ones might have to visit a hospital due to unfortunate circumstances. And one rarely ever budgets or thinks of such medical expenditure as a part of their monthly outflow. 
   

  So during those times, a money-saving plan can help you revitalise your budget and help shoulder your financial burdens. However, situations such as getting laid off can put a damper on the constant inflow of money. And to shield you from such issues, you must consider buying an insurance policy that safeguards against a fall in earnings due to disability or a volatile economy. 
  
  

• More than one income source:
   

  While expenses may vary, one's salary or business income is considered their constant source of earning. However, there are always more than one ways to earn a little extra on the side. You can either open up a side business or freelance for other companies that don't conflict with your current occupation.
   

  With the right skill and knocking at the right contacts, you can begin earning soon. One side hustle or second income source that's quite popular is - trading. Despite its ups and downs, it can be a great source of a second income. One can also invest in dividend-yielding long-term mutual funds to generate passive income. Another great way to become debt-free is through life insurance products. The payouts from the Insurance company could help with the repayment of interest rate and the principle of your loan. 
   

  If you buy a life insurance savings plan today with a policy tenure of 10-15 years, you can easily manage your future expenses with the help of the maturity benefits that will be paid out by the end of this tenure. Some policies offer a choice between lump sum and regular payouts, which you can choose as per your needs. Apart from clearing your debts, you will be able to set aside funds for many other goals.
  
  

• Foolproof Repayment Plan: 
  
  

  With credit cards, a great strategy is to ensure that you treat it as a debit card, which means you pay the whole amount at the end of the month before you have to pay heft interest. But if that is not a repayment plan that you can get behind, you can start by arranging your loans to increase order. So you can make the payments of your smaller loans first and keep the payments of your bigger loans towards the end. And make sure to not skip out on the repayments of the bigger loans; try to pay at least the minimum amount. 
   

  Clearing out the smaller loans will boost your morale. After the smaller loans are done, you can start channelling your money towards the larger ones. It will ensure that all your loans are taken care of systematically. 
  
  

• Better rates for your loan: 
   

  If you consider taking a loan, you can always negotiate with your lender to provide you with a better rate. Similarly, if you are paying all your repayments on time, then there is a chance of getting a lower rate on your loan.
   

  But to reduce the rates of pre-existing loans allows another bank to take over your older loan. When another bank or lender takes over your older loan, you are provided with a grace period that allows you to re-think your payment strategy. There is also a high chance that they will provide you with lower rates.
   

  Some life insurance plans offer a loan against the insurance plan. If you avail of this facility, you may be able to access better interest rates from your insurance provider and also be able to manage your loan and life insurance simultaneously. Usually, loans taken under a life insurance policy offer up to 80% of the policy’s sum assured. This means you can take a smaller loan that is easier to repay.
  
  

• Utilising your windfall gains: 
   

  Windfall gains are lump-sum amounts that an individual might get throughout the year. Bonuses at your workplace, inheritance or annual raise are a few examples of windfall gains. Most people even consider tax^* refunds as gains. 
   

  For those struggling with repayment of debts, you are advised to use this lump sum amount to pay off your loans, which drastically reduces the payment amount and the interest you have to pay each month.
   

  If your life insurance policy is about to mature, you can use a part of these benefits to repay your loans. However, this means that you should have already made the provision for repaying unpaid debts when buying the policy. Also, in your absence, if the burden of unpaid loans falls on your family, they will be able to repay the loan with the life cover benefit payable to them after your death.

   

Some other tips to save better and save yourself from the maelstrom of debt
 

 

• Avoid expensive habits such as extravagant shopping

• Selling tech products that you do not use frequently

• Cooking at home regularly, instead of ordering in for all your meals

• Sustainable fashion to ensure that you repurpose your garments and can prove to be environment friendly
   

These tips might seem insignificant, but they work if one is consistent. The benefits of financial planning can be reaped if only you avoid splurging on unnecessary things. These are only a few tips that will help you with your savings plan, but they can go a long way in preventing debt accumulation.
 

 

Tata AIA Life insurance Plans
 

Tata AIA Life Insurance provides flexible whole life insurance savings plan that offers long-term guaranteed¹ returns. They can be treated as an insurance and savings plan. This policy also ensures the return of the premium² amount paid after maturity. You can then use this money to eliminate debt. 

Under Tata AIA policies, you can also browse through other plans such as term insurance plans, money-back savings plans, ULIPs, retirement solutions and much more!

 

The only effective way to stay away from debt is to avoid temptations. Therefore, consider making some lifestyle changes until your debts are paid off. Also, you might want to keep your fridge stocked to avoid cravings. You can always fall back to your old habits once you are debt-free.

 

¹T&C apply

L&C/Advt/2023/Mar/1114