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How to Get out and Stay out of Debt?

11 ways to get out of debt and stay out of debt!

Guest Column: Expert-Speak

In spite of steady, regular income there are so many individuals who live pay cheque to pay cheque, carry their credit card outstanding, and fail to save anything for retirement. If you are one of them, now is the right time to take action to come out of debt and stay out of debt. It is not only possible; it is unbelievably achievable.

  1. List down all your debts

    You need to take stock of all your loans. It could be credit card due, personal loan, car loan, housing loan, education loan, loan from FD, loan from insurance policies, loan from your employer and so on. For each and every loan you need to note down how much you owe, the present interest rate, EMI, Number of months to be paid.
  2. Negotiate for lower interest rates

    If you could negotiate the interest rate and bring it down then you can come out of debt faster. Most of the credit card companies come forward for negotiation if you really show interest in repaying. They need not run after you to collect the debt. It will reduce their expenses. So they will be happy to negotiate. Balance transfer offers from credit cards are also a way to reduce your interest rate.
  3. Refinancing and consolidation

    Replacing a loan with another is known as Refinancing. The option of  refinance should reduce your interest rate and it should bring down the time you are in debt. But most often people go for refinance that provides them lower EMI by increasing the time they stay in debt.
  4. Categorise your debt

    Housing loan can increase your net worth over a period of time. Housing loan gives you tax benefit too. For a business man car loan provides some tax benefit. Based on these factors a debt needs to be categorized. This will help us in comparing different loans.
  5. Prioritize your debts

    After sorting out various loans, now we can comfortably prioritize the loans. Obviously this will be based on the interest rates and tax benefits. At times paying off a small loan first can give you a lot of motivation to get out of debt.
  6. Creating and Executing a Debt payoff plan

    You need to create a debt payoff plan with different scenarios. So that you can find out how some more savings or a different repayment order will help you to get out of debt faster. When creating a plan, you need to choose one which is comfortable to your attitude. Otherwise, you may not execute it properly.
  7. Refrain yourselves from applying for fresh loans

    You need to make a vow that you will not be adding any fresh loans, till you come out of all your debts completely. Think for a moment, how you will feel when you become debt free. This will provide you a lot of motivation to come out and stay out of debt.
  8. Postpone buying major assets

    Buying a property or any other assets needs to be postponed till you get out of debt. With your new ownership comes the new, probably large and unpredictable expense. This can make you deviate from your debt payoff plans and at times the consequences could be uncontrollable.
  9. You stop using your credit card

    There are two groups. One group of people uses the credit cards responsibly. That is they will repay the credit card dues in full when they receive the bill. The other group will pay the minimum amount due and carry forward the balance amount due. If you belong to the second group, you need to stop using credit cards temporarily. Take out and keep your credit cards in the locker. Once your financial situation and buying habits improve, then you can start using your credit cards again.
  10. Change your spending habits.

    Being in debt obviously means that you have been living beyond your means. The solution is very simple. Spend less than you earn and you will get out of debt soon. You need to change your spending habits. Then only this simple solution will be achievable. If you buy things you don’t need, you’ll soon sell things you need. Don’t save what is left after spending; spend what is left after saving.
  11. Involve all your family members

    You need to inform all your family members and dependents about your debt status. Then you will be able to take decisions with much more clarity. Moreover, if your family members know about your debt, they will also change their spending habits and support you in getting out of debt faster.

Consider the postage stamp: Its usefulness consists in the ability to stick to one thing till it gets there. Similarly, you need to stick to your debt pay off plan till you get out of it.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners(www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
Views expressed on this website are of individual writers and NOT of the website/blog-owner. Individuals are advised to exercise personal judgement before responding, using or contacting to any post/writer/organization.

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10 Commandments of Successful Investing

Guest Column: Expert-Speak

Let me unveil the 10 commandments of successful investing today. These commandments strictly followed can make you a successful investor; make you richer. The successful legendary investors like Benjamin Graham, Warren Buffet have followed these principles. So why not you?

1. Decide your investment strategy and stick to it: 

An investor may invest in SIP and when the market continues to fall he will discontinue his SIP. But market crash is the right time to continue your SIP. Because, during the market crash you will get more number of units and the averaging works out in your favour.

Another investor may decide 50:50 as his debt:equity asset allocation ratio. When the market goes up he may want to invest more in equity and hence he may change his asset allocation to 30:70. Actually when the market goes up one needs to reduce his equity exposure to bring the portfolio back to his predetermined asset allocation ratio.

Don’t change your strategies midway. You know what is best for you and this applies to deciding with foresight the ideal investment strategy for you. Once the strategy is set, do not fluctuate in your decision each time you decide to invest. This would only mean losses instead of profits.

2. Conduct your own research on stocks: 

It is not advisable to just depend on hear say and decisions of your neighbor, friend, relative or tips from the media or your stock broker and invest in stocks. It may seem easy but could amount to gamble. Being an informed investor, investing your hard-earned money needs you to ensure if the investment would meet your financial goal. This could be done through research from various sources.

3. Learn to overlook short-term fluctuations:

If you want to be a successful investor, you need to understand that it is futile to be affected by short-term fluctuations of the stock market. Investing in good and reputed portfolio ensures good quality of your investment and capital appreciation in the long run. The short-term volatility of the share market has nothing to do with the long-term performance of your investments and achieving your financial goals.

4. Resist investing in penny stock:

Some investors have a common misconception that it is better to invest in penny stock than in high value stocks. This is wrong as whether you buy stock at Rs.5 or 5000, you need to check the background of the company before looking at the price of the share.

5. Discard the losers and pamper the winners:

There is a tendency among investors to sell off appreciated stock and to hold on to depreciated stock in the hope that it would rise. It is wrong, as it is possible that the shares which are not doing well may continue to underperform and the shares that are doing well may continue to perform well in the future.

It is better to acknowledge you went wrong, swallow your pride and discard the loser stocks and lessen your losses. Your decision lies in deciding to suffer a one-time loss for future long-term gains.

6. Look before you leap:

Even good company shares bought at the wrong price can be a poor investment choice. So devise some strategies like SIP, asset allocation to avoid this mistake.

7. Adopt an open-minded investment strategy:

It may be advisable to consider investing in good companies, however it is wrong to overlook the point that small start-up companies can make profits as well. Even such companies with good strategies and growth plans could contribute to long-term capital appreciation. Always have an open mind in taking your investment decisions.

8. Base your investment strategy on the future: 

Investment decisions based on past happenings may not always be right. It is better to consider the happenings, but give more importance to the present and future prospects of the investment. An informed decision based on the fundamentals and mission of the company helps in long-term wealth creation.

9. Consider tax friendly investments:

Making investment decisions based on tax considerations may prove counter-productive. However minimizing taxes and maximizing returns after taxation would help. The long-term capital gain tax is nil. So if you invest for a time horizon of more than one year you will have better post tax return.

10. Adopt a long-term perspective:

Adopting a long-term prospective is advisable if you want to be a successful investor. If you want to get short-term results, then you will be able to cultivate only coriander leaves. If you want to grow a large banyan tree then you need to wait for years. So if you really want to be richer and create wealth, you need to be a long-term investor.

You could have seen a lot of success stories of people, who bought a good stock 10 or 15 years back and accumulated a good amount of wealth now because of the appreciation of those scripts. But have you ever heard of a person accumulating wealth by trading in the stock market or moving in and moving out of the market?

By trading in market you may make profits in a few transactions, but you will not be able to make profits forever. There is a lot of difference between making profit in a single transaction and being a successful investor forever.

Knowing Vs Doing

There is a huge difference between knowing what we should do and actually doing it. The knowledge piece appears quite sexy; being interested, learning something new, coming up with that cool idea. The doing part sounds comparatively like routine work, no matter how easy this work may be to do or how obvious that it should be done. Don’t fall into that “Knowing Vs Doing gap”.

Now you know the 10 commandments to successful investing; put it into practice to become richer.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.
Views expressed on this website are of individual writers and NOT of the website/blog-owner. Individuals are advised to exercise personal judgement before responding, using or contacting to any post/writer/organization.

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