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7 intelligent ways to stay out of debt while maintaining a good credit score

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With changing lifestyles and spending patterns, the dependency on personal loans has considerably increased over the course of time. Understanding this trend, most banks have relaxed their loan approval process. This has made personal financing more accessible than it was before. So, is it a good or a bad sign, considering that taking a loan officially puts you in the debt column? 

Maybe this will come as a surprise but staying in debt is not that bad as it sounds. In fact, it helps you build credit, which can prove to be a financial advantage for you in the long run. For instance, banks won’t think twice before giving you a loan at competitive rates if you have a good credit history.  

However, defaulting on a loan can seriously take a toll on your financial health. So, if you want to shy away from being too much in debt but simultaneously maintain a decent credit history, you may consider the following pointers.

  1. Avoid borrowing more than you need:  Personal loans can be alluring. If you have a steady income, most banks will offer you loans ranging from Rs.1 lakh to Rs.10 lakh or even more. Don’t fall for it. Understand your requirements and borrow the amount you need. A bit of pre-planning will help you decide on the loan amount.  

  1. Don’t apply for a new loan if you have a pre-existing loan: If you are already repaying your existing loan, getting a new loan can prove to be a burden. In such a situation, you can either close your previous loan account or avoid applying for a new one. Alternatively, you can consolidate your existing debts through a balance transfer plan and repay at a lower interest rate. However, opting for balance transfer should be your last resort as any missed payments will incur heavy charges in the form of interest rates and late payment fees. 

  1. Keep a check on your credit card usage: Credit card debt is a different ball game altogether. If you have multiple credit cards, resort to using one. However, make sure that the card you are choosing complies with your spending pattern so as to maximize rewards.  

  2. Change your lifestyle: Not drastically, but if you think that you’re overspending, then it’s time to put an end to it, especially when you are planning to borrow funds. Prioritize your needs and spend accordingly. Avoid spending on unnecessary or luxurious items; those are not that critical for survival. 

  3. Pay other bills on time: Don’t let your credit score take a hit, keep making timely payments on all bills. Before taking the loan ensure that you have cleared all your pending bills. This will stop you from getting further into debt. 

  1. Don’t increase your monthly budget: Suppose you got a promotion at work or switched your company and are earning more, there are changes of going overboard in terms of spending. Refrain yourself from doing that and stick to your old monthly budget plan. In that way, the pressure will be less, and you can clear your debts by making loan prepayments conveniently. Simultaneously, you can put the additional amount in your savings account or fixed deposits. The latter will give you returns on the invested amount. 

  1.  Have an emergency fund: Keep a separate fund aside for emergency situations. This will save you from life’s unwanted surprises. For instance, if you injure yourself and are out of work for a month or two, an emergency fund will help you sail through in those troubled times. If the fund is good enough, making personal loan repayments won’t be that difficult as well. 

If you have taken a loan, you can still meet your monthly installments without worrying too much. All you need to do is manage your finances diligently. Track all your expenses and see whether you can cut down on some of the areas. This way, you will be able to maintain a healthy credit record without reeling under burgeoning debt.  

posted Mar 14 by Sebastian Taylor

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