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  • Writer's pictureAkshay Nayak

Destroying Debt

Debt, in one of its forms or the other has become a part of the lifestyle of any individual in the modern era, almost by default. And this is true for most individuals all around the world. The case is such thanks to rampant consumerism and a desire to enjoy the best standard of life possible. But, in the long run the presence of debt in our lives only takes away our sense of financial security and seriously dents our prospects of achieving financial independence. Therefore, it would be in our own best interests for us try and pay off our debts and achieve debt free status as quickly as possible. But this is easier said than done, since the battle against debt is long and highly demanding one. It also leaves us with very little room for error in other aspects of our financial planning endeavours. Therefore, today’s post will throw light on a few pointers to help us go through the battle against debt and win it as quickly and effectively as possible.

The first step towards winning the battle against debt is to give debt resolution top priority within our list of financial goals. Planning and investing for other long term financial goals can begin or resume after we are completely free of debt. The reason I say this is simple. The reason why we invest and achieve our financial goals is to ultimately achieve financial independence. But, we cannot give ourselves a stable foundation on which to achieve financial independence until the time we are debt free. No matter how well we achieve our other financial goals, we cannot consider ourselves to be financially independent in the true sense until we are completely debt free. Also, if the amount of debt we are in is reasonable and we conscientiously go about the resolution process, a maximum period of 5 years should be enough to help us pay off all our debts. So in most cases, this would leave us with enough time to achieve our other financial goals even if we were to begin planning for them after we are completely debt free.

But committing to the debt resolution process and going about it conscientiously is no easy task. As part of the debt resolution process, we must first move away from the lifestyle we are currently leading and commit to a comfortable but minimalistic lifestyle. And that means saying no to mindless consumption and competing with the lifestyles of those around us for the rest of our lives, even after we are completely debt free. So it is a commitment that must willingly come from within us. In order to make this process easier when battling against debt, charting out and sticking to a clear budget and a schedule of intended debt and EMI payments over the tenure of each of our loans is always a good idea. It would help us clearly understand where we can cut costs in our day to day activities and also show us when and how much we need to pay towards keeping up with each of our debts. This in turn would act as a huge confidence boost and give us greater control in our battle against debt. Getting in touch with people around us who have been in debt and successfully completed the resolution process for help and advice would also help motivate us to stay the course and complete our own debt resolution journey.

With these aspects in place to serve as a solid foundation in our battle against debt it would be time to get down to actually tackling our debts systematically. Facing up to a single loan is relatively easy since we direct all of our savings towards that one solitary loan. But the situation gets tricky when we find ourselves needing to juggle multiple debts. In such a case it would be better to first segment all our debts into various heads depending on the source of the debt. The major sources of debt in most cases are credit card debt, personal loans and home loans. It is always better to begin attacking any credit card debts we may have first, while making minimum payments on all our other debts. This is because credit card debts come with high interest rates and hence compound quickly over time. Personal loans can come next, followed by education loans with home loans in the end, since interest rates on home loans and education loans are relatively lower compared to the other two since they are spread out over a longer tenure. Those of us who need to plan for other goals apart from resolving our debts may put the groundwork in place for those goals once we have paid off our credit card debts and personal loans and only have home loans left to pay off. More of my thoughts on this subject can be found in one of my earlier articles titled The Personal Finance Thali, in the section Paying Off Multiple Debts.

Even though debt resolution should be the foremost financial goal that we must strive to achieve, there are situations in which debt resolution also must take a back seat. This is especially true when we find ourselves faced with an unexpected or lasting financial emergency. Such situations could include scenarios such as family members being requiring lasting and expensive treatment for a medical condition or sudden health hazard, a sustained liquidity crunch, an unexpected job loss followed by a lasting lay off period and so on. In such cases it is essential to first tackle the emergency that faces us before resuming the process of resolving our debts. Also, the debt resolution journey is a one that runs into years. So no matter how disciplined we are with regard to servicing our debts, there may be times along the way that we are distracted by our desires. These could include wanting to go on a holiday with family or friends, wanting to have a lavish wedding or wanting to invest in risky investment products such as equities so that the potential returns can help us pay off our debts faster. But all such desires are not worth paying heed to because they only provide temporary satisfaction at best. We would be better served focusing on our task and seeing it through to a successful finish which would give us a genuine sense of satisfaction and fulfilment.

In conclusion, a simple and conservative but debt free lifestyle is always better than a glamorous but debt ridden one, when it comes to our ambitions of achieving financial independence. Most of us tend to look at owning expensive possessions and leading a lavish lifestyle as being worth it at all costs. This is because these things are usually constructed as being a status symbol by a significant majority in today's society. But, a status symbol is something that separates us from the rest of the crowd. And in today's times, where most people are burdened with one form of debt or the other. being debt free is more practical and effective as a status symbol than owning expensive possessions that are usually funded through debt. And the only way to achieve freedom from debt is to make a permanent commitment towards following a more disciplined lifestyle within our means off our own choice, while being surrounded by like minded friends who are debt free while fully focusing and never giving up on our own debt resolution journeys. I now end with a quote that sums up the essence of this post.

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