How to be Debt Free in 1 Year?

Most of us who can't pay with cash right away borrow money to pay for practically anything we want to buy. As soon as we take out a loan to pay for a new home, car, establish or develop our business, pay for education, monthly bills, or a medical emergency, the burden of EMI begins, and before we know it, we feel trapped in a debt cycle. So, I have listed five methods to assist you in better managing your finances and learning how to be debt free in 1 year.

Best way to clear debts fast

To get rid of debt quickly follow these steps.

1. List down all your debts: You must first inventory all of your loans if you want to escape the debt trap. It might be a mortgage, a personal loan, a vehicle loan, a student loan, an FD loan, an insurance policy, a salary advance, or credit card debt. You must accurately know the amount of each loan, the current interest rate, the monthly payment, and the length of the loan.

2. Understand and bifurcate your debts: Debts come in two flavours: good and terrible (not-so-good). Examples of positive debt include home loans, personal loans for education, medical emergencies, and company loans. These loans may inconvenience you temporarily, but they are an investment that help you strengthen your financial situation over the long term. On the other side, a bad debt example would be paying astronomical interest rates on credit card debt.

   Sorting out your loans into good and bad loans is your second step to escape a debt trap (not-so-good). For instance, if you have a credit card debt of Rs. 1 lakh, a Rs. 20 lakh home loan, and a Rs. 4 lakh personal loan, you should start paying the credit card payment first. After paying off your credit card balance, you can concentrate on paying off your personal loan and eventually your mortgage.

1. Pay back the high-interest loans: Find the loans with the highest interest rates and begin making payments. Comparing credit card interest rates to other loans, they are frequently very high. In the long term, paying off your Rs. 1 lakh credit card balance with a 24% interest rate will save you more money than repaying a Rs. 1 lakh personal loan with a 13% annual interest rate.

2. Make a plan and adhere to it: Make a strategy to pay off your debt that takes into account a variety of circumstances, such as potential medical emergencies, contingency funds, and the establishment of monthly savings deposits.

3. Avoid accumulating more debt: Make a pledge to yourself that you won't take out any new loans until you have paid off all of your existing debts in full and maintain your word. Keep in mind that if you don't pay off old loans and keep taking out new ones, you will never be able to get out of debt. Don't let cheap EMI deals and days with steep discounts tempt you back into debt. Be determined to get out of debt and keep it there.

This is how to be debt free in 1 year.