How To Get Out Of Debt Trap? - 9 Smart Ways | HDFC Bank (2024)

FAQs

How To Get Out Of Debt Trap? - 9 Smart Ways | HDFC Bank? ›

Opt for debt consolidation: One of the best ways to get out of a debt trap is debt consolidation. This means that you can take a new, lower-cost Personal Loan and pay of several of your pending debts. When you consolidate your debt, you are combining multiple debts into a single debt.

Try the debt snowball or avalanche method

You can start to see progress while paying off the lowest balances first, then move on to the next. The debt avalanche method saves money on interest when you pay the minimum on all debts while putting extra funds toward the balance with the steepest interest rate.

To escape a debt trap, focus on budgeting, prioritize debt payments, consider consolidation or negotiation, and avoid accruing more debt through responsible financial management.

If you only make the minimum payment each month, it will take about 460 months, or about 38 years, to pay off that $30,000 balance.

People who file for personal bankruptcy get a discharge — a court order that says they don't have to repay certain debts. Bankruptcy is generally considered your last option because of its long-term negative impact on your credit.

Make a lump-sum payment or prepay the loan: If you receive extra funds, think about allocating them towards your loan principal. This directly reduces your outstanding balance, resulting in quicker payoff and reduced interest charges.

Debt settlement programs and bankruptcy both have the potential to result in forgiven debt, but they're also likely to have a significant impact on your credit score and your ability to borrow.

You will normally have to convince a creditor that writing off the debt is in their best interest as well as in yours. Usually, this means showing them why there is no likelihood of them getting enough money back to make it worth pursuing you for the debt any longer.

If you have loans that have been in repayment for more than 20 or 25 years, those loans may immediately qualify for forgiveness. Borrowers who have reached 20 or 25 years (240 or 300 months) worth of eligible payments for IDR forgiveness will see their loans forgiven as they reach these milestones.

Consider the snowball method of paying off debt.

This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance.

How can I get out of debt ASAP? ›

"This means that for most, the fastest way to pay off debt is to dramatically reduce spending, stick to spending only on necessities, and focus all excess income on your debt." Selling your car, cutting down restaurant expenses and adding income from a side hustle are all possible ways to improve your cash flow.

It will take 47 months to pay off $20,000 with payments of $600 per month, assuming the average credit card APR of around 18%. The time it takes to repay a balance depends on how often you make payments, how big your payments are and what the interest rate charged by the lender is.

Stop Borrowing Money

The first and most important step in getting out of debt is to stop borrowing money. No more swiping credit cards, no more loans, no more new debt. Reshaping your attitude toward money and debt is the most fundamental change that has to happen.