People have easy access to credit in the modern times that we live in. As a result, credit usage is omnipresent. However, unscrupulous use of credit can lead to a debt trap. You can however avoid getting into a debt trap if you can follow basic financial discipline. Following are ten steps that can help you keep your debt within reins and help you improve CIBIL score.
Know the kind of debt you own
The first step of managing debt is knowing the kind of debt you own. All kinds of debt are not the same. Unsecured debt such as credit card debt and personal loans are costlier and can easily lead to a debt trap if they are not repaid on time. Besides too many unsecured loans can reflect badly on your credit score. You must maintain a good balance between secured and unsecured credit in order to increase credit score.
Fix a budget
Once you are aware of the kinds of debt you own, you must fix a budget that takes into account your debt repayments and monthly expenditures. Prioritise your repayments and utility expenses to increase CIBIL score. There are several apps available that can help you with your budgeting needs and will also send you alerts when you exceed your budget.
Manage your repayments
Repayments comprise the most important part of your credit score. It is thus very important to make timely repayments to enhance credit score. Automate your payments by setting up ECS instructions on your savings account. Needlessly to say you must keep your account replenished before the ECS date.
Keep a check on your credit card expenses
Often, credit card expenses are responsible for debt going out of hand. It is thus very important to keep your credit card expenses under check and repay your credit card bills on time. Make it a habit to spend small amounts on your credit card and repay the credit card outstanding in full in each billing cycle.
Do not bite more than you can chew
Just because debt is available easily does not mean you need to avail of it. Apply for credit only if you are in dire need of the same and are sure that you can service your debt within the stipulated time frame.
Do not apply for debt in quick succession
Applying for too much debt in a short time frame can be detrimental to your credit score. Each time you apply for a fresh line of credit, you score takes a hit and remains as a hard inquiry on your credit report. Too many hard inquires will make you seem credit hungry and thwart your chances of availing of credit when you are in dire need of it.
Shop around for better deals
Just because you have opted for a lender or credit card issuer does not mean you have to be stuck with the same till the end of your loan tenure. Nor do you have to be stuck with the same credit card issuer for the rest of your life. Keep an eye out for the best deals and try and reduce your debt burden by opting for a better rate of interest or better repayment terms. This may prove to be an apt credit solution if your debt is going out of hand.
Reduce your expenses
When you are servicing debt, repaying your debt should be your priority. Reduce your monthly expenses as far as possible to keep your outgo under check. This is where your budget comes in handy. However, making a budget is not enough, you must have the determination and persistence to stick with it.
Try to increase your earnings
Servicing a lot of credit together can be a drain on your finances. You must therefore try to increase your earnings if your debt is becoming a burden. Attempt to maximise benefits from the social media platforms that you are present on to get some freelancing assignments that are up your alley apart from your regular job.
Seek professional help
If you are still finding it difficult to service your debt at hand or you feel that you are already in a debt trap, you need to seek professional help. A credit repair or a credit health agency can help you repay your debt, by suggesting the right credit solution. Further, credit health professionals can chalk out a path to maintain your credit health going forward. This will ensure that you do not fall into a debt trap in future.
Managing your debt properly is key to maintaining good credit health and keeping your credit score up to the mark. Maintaining a good credit score will ensure that you get timely access to credit at competitive rates of interest.
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