3 Steps to Have a Debt-Free Year

New Year is a time for making resolutions, decisions and for reflecting on the things in your life. Every year, countless numbers of people in India resolve, at the year’s beginning, to pay off their debt. However, very few of them actually do that. 

By February, the enthusiasm you had in January may most likely wear off. This will be faster if your plan was too complex or too flimsy. In these cases, without a concrete plan, your plan shall fizzle out and finally be forgotten.

Instead, try out this plan. Complete the first two steps and you get to choose a payoff method in step three, which shall carry you through for the rest of the year.

1. Know your debts: It might sound scary, but you do need to know your debts, or the money you owe to people or agencies. Besides, you do need an honest evaluation of your debt. Also, you only need to do this just once.

2.  Fund your debt accounts: Now that you know what debts you have, it is time to become free of them. To do that, there are a few sub steps. First of all, you need to calculate your monthly expenses, including what you need to create your emergency fund. Now, subtract that amount from your monthly income. This shall give you the funds you can dedicate towards eliminating debt.
   
   To make real progress, you need to do two things. Firstly, you need to earn a bit more, which you easily can by cutting off excess expenses, selling old electronics and even your cable connection. All this might not be fun to do, but remember that doing these shall help you a lot in settling your debts.

3. Find a repayment strategy and stick to it: There are so many ways to fall into the debt trap, but just two ways to climb out of it. These strategies are the Debt Avalanche and the Debt Snowball. These depend on your preferences for persistence and instant gratification.
   Debt Avalanche strategy can be used if you want results fast, but it can feel slow in the beginning. In this strategy, you pay off those debts with the highest interest first. Over time, this strategy saves you thousands. The only problem is that it takes time to get the first debt to be settled.
   Debt Snowball is the strategy in which you get rewards upfront. In this, you focus on the smaller debts first. Since these get over faster, you get more motivation to keep continuing. You focus on the smaller debts first, no matter what the interest rates are. The catch is that this process takes longer and costs more in interest.
   You can supplement either strategy with the strategy called Debt Snowflakes. In this strategy, you put small savings for your goals. 

So many people around us struggle to pay off their debts. Well, now you do not have to be one of them!