Debt is one of the most notorious four-letter words in personal finance, and it’s something many grapple with. In our society, debt is a part of life. Debt can help us buy a car or house, fund our college fees, raise capital for business. When debt is managed well, it is a stepping stone that enables us to improve our life and get things accomplished. However, if debt is not managed well, it can become a stumbling block and hinder our progress rather than move us forward. It’s a double-edged sword.

These are the ways you can approach on how to pay off your debt and leave some, if not all of your financial burden behind:

• Make a list of all your debts: To start to get out of debt, start by knowing where you stand. Make a list of your debts, including the creditor, total amount of the debt, monthly payment, and due date. List all of these debts on a spreadsheet or single piece of paper so you’ll have all the info in one place. Update your list every few months as the amount of your debt changes.
• Decide which debts to pay off first: Use your debt list to prioritize and rank your debts in the order you want to pay them off. Once you have your debt ranked, create a regimented game plan for how you’re going to get the worst debt to a balance of zero, before you start tackling everything else. There’s no sense in spreading your payments equally over all of your debt accounts. Make the minimum payments on your ‘less bad’ debt so you can put maximum resources toward paying down the worst debt quickly. Also, there are various facilities available in the market which will help you to transfer from a higher interest rate loan to lower interest rate loan.
• Make the minimum payments on time: If you can’t afford to pay anything more, at least make the minimum payment. Of course, the minimum payment doesn’t help you make real progress in paying off your debt. But, it keeps your debt from growing and keeps your account in good standing. If you don’t pay the minimum, your creditor could charge a late fee. If you’re late by one month or more, creditors typically report your late payment to the credit bureaus. This damages your credit score. You could also go into default, triggering a lawsuit.
• Prepare monthly budget to plan future expenses: A budget shows you what you’re spending where and where it makes the most sense to put your money. Keeping a budget helps ensure you have enough money to cover your monthly expenses. Plan far enough in advance and you can take early action if it looks like you won’t have enough money for your bills this month or next. You should spend money wisely – within your capacity. Banks will be prudent lenders, you have to be a prudent borrower.
• Plan for an emergency fund after paying off all debts: Without access to savings, you’d have to go into debt to cover an emergency expense. The suggested amount to have in an emergency fund is three to six months’ worth of expenses. Life happens, and if anything comes up, like a job loss, medical bill or car repair, you need to be able to cover it. Additionally, having a fund like this, will ensure you don’t have to pull out investments and other savings at such times.