A quick guide to reduce your debt in three ways!

17th November 2015

 
 

When you liberally avail lending solutions from the banking sector, there will come a time when you realize your outstanding dues have grown beyond your means of repayment. What is important to realize is that though the principal amount does reduce every month, the markup costs keep adding to the total debt value. Although it is difficult to eradicate the entire amounts in one-go, there are certain techniques to reduce your debt servicing costs monthly and ease up your disposable income for other expenses. Here are three ways to minimize the markup costs on your outstanding debts.

  1. Most people would advise you to pay amounts greater than the minimum payments on your credit card bill. They are not wrong! One of the quickest ways to reduce your debt is to enhance the monthly payment amounts on your credit card. This accelerates the reduction in outstanding principal amount, therefore allowing for lower markup to be charged every month. To reduce your debt by lowering markup costs, you must make additional payments on your credit card dues every month.
  2. Make balloon payments on your personal loans to reduce your debt. Certain banks allow their clientele to make balloon payments to reduce outstanding primary amounts. This greatly helps to reduce your debt in the long run, especially since monthly installment amounts are revised downwards after every balloon payment.
  3. Use cash-lines to make payments for credit card dues to help reduce your debt amount. Although this is not the ideal way to dial down your outstanding liabilities, especially since the principal amount is merely transferred from one product to another, it helps in reducing the monthly markup cost. Cash-lines charge 30% annual markup on outstanding principal, whereas a credit card facility charges up to 39%. By transferring your liability from a credit card to a cash-line you could reduce your debt amount by 9% annually.

There are no magic ways to eliminate your debt amounts without actual repayments. However, if care is taken to manage the outstanding dues in an efficient manner, you can easily reduce your debt in absolute terms over your entire repayment tenure. Adoption of such techniques will not merely reduce your debt; they will also help in total eradication of outstanding dues in a shorter time period!

 

By Saad Niaz

 

 
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