An expert
Published on : June 23, 2021

Being debt-free is an ultimate feeling of financial freedom. Everyone wants to have it but very few are disciplined enough to work for it. Spending within your means is not always an easy task in this world of consumerism. Not everyone is born rich. People who start off with a small job and have to work their way up, have aspirations and dreams. 

Everyone wants to have a house and a car. Who is not tempted by the latest gadget in the market? The peer pressure of having to match up with others keeps pushing people towards debt and without even realizing it, they fall into a debt trap. By the time reality bites, it is too late and they are knee-deep in a mess of their own making. If this is your situation, read on to figure out how this can be solved using some prudence and a lot of patience. Borrowing from Peter to pay Paul will keep you stuck in this vicious cycle forever.

How can you reduce your loan without impacting your savings?

Here is a simple eight-step process that will help you to reduce your debts without pinching your pocket.

  1. Take a good hard look at your current reality
  2. List out all your debts on a spreadsheet
  3. Sort them in ascending or descending order
  4. Attack them one at a time
  5. Get your monthly budget in order
  6. Cut out the frills
  7. Consolidate your debts
  8. Liquidate Dead Investments
  9. Do not repeat your mistakes

Let us look at them in order.

Take a good hard look at your current reality

The first step is to face current reality.  You will have to stack up the numbers and see where you stand. What is the total amount owed and to whom? You will need to know these numbers at the back of your hand if you plan to do anything about them. There is no point beating about the bush or deluding yourself that everything will fix itself. It won’t happen unless you make a concerted effort.

List out all your debts on a spreadsheet

It is always convenient to write down the details of all your loans on a spreadsheet. It will be easier for you to track and all details will be available on a single spreadsheet.

You can include – 

  • Name of Lender
  • Loan Account No
  • Amount due
  • Date of taking a loan
  • Interest Rate
  • Amount paid till date
  • Separate columns for principal and interest
  • Due date of EMI

Sort them in ascending or descending order

There are two schools of thought. You can either use the Debt Snowball method and sort them in ascending order where the smallest debt comes on top. Else, you can use the Stack Method and place the latest debt on top and sort in descending order. 

Attack them one at a time

Now that battle plans are drawn you know which one to attack first. You can move either way. You can knock the smallest one off first. It will give you confidence that it can be done and will motivate you to attack the next one. Every debt knocked off is a victory, small or big. It will leave you with reduced monthly installment.

You can employ a different strategy and pay off the most expensive debt first, i.e the one with the highest interest rate. That will leave you with more money in your hand as you will save on the interest cost. 

While you close one debt, you should exercise restraint and not create a fresh debt of the same amount or at the same rate, else you will be back to square one.

Get your monthly budget in order

When do debts spiral out of control? It is when you spend beyond your means. When you cannot control the urge to purchase everything you see, your monthly budget goes out of whack. While you are repaying your loans, it is important to manage your monthly budget and control the outflows. That will help you to manage the EMIs while you figure out ways to pay off your debts. Decide an amount beyond which your monthly budget should not cross and pat yourself on the back when you complete a month within it. Soon, you will find small savings and these do add up over time.

Cut out the frills

When you are stuck with multiple debts, the first thing you need to do is control your spending. Avoid all unnecessary discretionary spending till you get your house in order. You would be amazed at how much you can save. These savings can actually go towards clearing a debt.

Consolidate your debts

If you are dealing with multiple credit card debts or other unorganised debts that charge usurious interest rates, you may do well to avail of a personal loan and pay them off in one go. Before you wonder why we are suggesting a new loan to clear the old ones, there is a difference. Credit cards charge 24-30% per annum on the outstanding dues while a personal loan can be availed of at 18%. This will knock off several line items from your spreadsheet and you will be left with one personal loan to manage against them. This loan can be paid in EMIs over the tenure. Whenever you come into cash by way of a bonus or a salary increment, you can use the same to reduce the principal and consequently the interest cost will reduce.

Liquidate Dead Investments

If you have any dead investments that are not yielding good returns, you would be better off paying off your debt after liquidating them. This will reduce your debt without impacting your wallet. There is no point holding an expensive debt when you can use these slow-moving assets to pay them off. You will save substantial interest costs which you can deploy in better investments.

Do not repeat your mistakes

As humans, we all make mistakes but it is important to learn from them and make sure they are not repeated in the future. Once you pay off your debts in a structured fashion, you will find your monthly cash flows healthier. Your mind will experience a sense of relief and you will be stress-free

In conclusion, it can be said that a loan should be taken to meet emergencies or to deal with some important expenses. Making debt a way of life is a dangerous way of living for it is a vicious cycle with no escape route. Always pick the amount of loan and tenure based on your need and your ability to repay on time. Any defaults will affect your credit score and close your chances of getting a loan in the future. If you wish to know more about personal loans and how they can help you to consolidate your debts, do visit us at and we will be happy to assist you. Use the loan option wisely and you will be rewarded. Use it rashly and you will be left stranded.