Tips to Pay Off Debt Quickly

 


Almost everyone has been in debt, if not to the bank, yes to neighbors or closest relatives. Debt is a financial problem that must be resolved as soon as possible. Because delaying debt payments will only add to new obligations, especially if you borrow them from illegal financial institutions that charge stifling daily interest.

7 Tips to Pay Off Debt Quickly

Not a few people also make debt a habit. Completed one debt opens another debt. Meanwhile, the debt is not balanced with investments or profitable businesses. Debt is often taken to meet domestic needs.

Those who make debt a habit often lose valuable assets such as land and houses to get rid of debt. This decision created new debt because they were forced to rent a house or take installments on a new house that was not cheap to pay off the debt.

Types of Debt
In Indonesia, there are two types of debt commonly provided by the bank and non-bank financial institutions, namely short-term debt and long-term debt.

Short Term Debt
As the name implies, short-term debt is debt that is settled in the short term, usually between 3-12 months. Banks usually offer this type of debt in unsecured loans and collateralized loans (multipurpose).

However, nowadays short-term debt offered by non-bank financial institutions or from financial technology (fintech) is rampant.

Fintech companies offer debt with a maximum maturity of two years and charge daily interest. The most striking difference between KTA banks and fintech is the number of loans given.

Banks can provide credit reaching hundreds of millions of rupiah, while fintech usually only provides loans under IDR 20 million. While the purpose of credit is also freed for anything as long as it is not something that is considered illegal or violates government law.


Long-term debt
Meanwhile, long-term debt is credit that is settled in a long period, usually more than 2 years. Loans that fall into this category include motor vehicle loans and homeownership loans.

More long-term debt is provided by banks, with interest referring to the increase in Bank Indonesia's interest. Until now, no fintech has long-term debt products.

Both long and short term debt has implications for a person's financial condition. Therefore financial consultants recommend that each citizen does not take on debts of more than 30% of the total monthly income.

Because more than that the debtor is at risk of default and the possibility of being trapped in taking new debts or losing collateral in the form of valuables. Debt is also divided into productive and unproductive/consumptive debt.

Productive debt
Is a type of credit applied to meet investment or business needs? So that debt is expected to create beneficial benefits to pay off loans.

One example of productive debt is KPR. Even though the mortgage installments were quite high, the asset value never decreased. If we sell it back it will make a profit

Consumptive debt
Is a loan that is proposed to meet consumptive needs such as credit for purchasing vehicles and gadgets. The asset value of consumptive debt will often disappear within a few years so that credit at the end of the period does not provide benefits, instead, it absorbs income.

For those of you who are still thinking about taking on large amounts of debt, try to calculate your ability to pay. Or do you still have a debt that hasn't been resolved? Try to follow these tips so you can pay off debt quickly.

7 Tips to Pay Off Debt Fast
1. Reduce Lifestyle
Often our inability to pay off debts is the result of bad financial management because of an overly high lifestyle. Ideally, the percentage of daily living expenses is not greater than 30% of the total monthly income.

However, this often fails to do because of a high lifestyle such as shopping for luxury items every weekend or hanging out to expensive places every weekend.

You can change your hangout habits by switching to city parks. In the city park, there are no luxury goods stores so that shopping appetite can be suppressed. Change the habit of eating outside by cooking yourself at home.

Usually, this is effective in reducing expenses by up to 50%. Try to allocate 70% of salary to pay debts, so that the short and long term debt period can end soon.

Moving your residence is also a part of reducing your lifestyle. If you are accustomed to living in a city center apartment, it might not hurt to try to rent an apartment in the suburbs for 50% cheaper. Replace your daily ride with public transportation which can save you daily expenses.


2. Record the Expenditure Pattern
Sometimes a person's inability to pay debts is not due to lack of income, but poor financial management. Every expense is never recorded with minimal investment and savings.

If you feel that your existing debt has started to burden it, it means an alarm that your financial condition is not good. Record daily expenses and monthly expenses such as food, transportation, housing, investment, insurance, and entertainment expenses.

Cut some expenses that cause consumptive debt, start multiplying investments in the hope that the return given can fill the debt. You can start investing with deposits or mutual funds.

Deposits offer a profit of 0.6-0.8% per year while mutual funds can usually be greater, even up to 20% per year. Then for insurance, if you feel that you are taking too many policies, try choosing only one type that provides the most needed protection.

You can allocate the amount of insurance premium that is paid each month to pay off credit. For example, if you have two types of insurance, namely life, and health, you can choose life insurance or health only. Both do not have to be owned. Or choose insurance that also offers investment benefits.

3. Selling Valuables and Unused Items
When you are in debt, you have to be creative in finding a way out, one of which you can choose is to sell some valuable items that are not used, people commonly call these items preloved.

Clothes, shoes, bags, furniture, and even books still have a chance to bring in money. You can open an account on the e-commerce carousel that is made especially for people who want to sell used goods.

For those of you who like to shop for luxury goods, have a collection that still has high selling value. Instead of just being a display at home, there's nothing wrong with selling it to cover ongoing debts.

However, when these unused items do not generate funds as expected, the last resort is to sell valuables such as land, property, or precious metals.

Indeed, valuables are difficult to release, because their value may increase in the next few years. However, instead of getting into endless debt, it's better to sell valuables now. After the debt is paid off, then focus again on saving to buy what is your dream.

4. Look for Additional Income
If you don't have any valuables that can be sold to cover the debt. So like it or not you have to have additional income from a business or a side job.

You can choose a side job such as being a tutor, dance teacher, writer, graphic design, or even an online motorcycle taxi/taxi. If you have a little capital you can become a reseller/drop shipper for online products.

To increase your monthly income you cannot just standstill. Everything needs to be done even though it is only opening small stalls in front of the house.

5. Don't Take New Debt
Not a few Indonesian people have the habit of digging holes that cover the holes. Borrowing new debt to settle old debts, which in turn puts a person in debt bondage for life.

It is better not to submit new debt before you have completed the existing debt. Because this means that the debt burden has doubled. Don't be tempted by a credit card, because a credit card is not a savings but a debt card.

When you are still in debt and then shop using a credit card, this means you are taking on new debt. Even though the bank imposes 0% installments, but owing in a condition that is in debt will place you as a debtor with a bad credit card history.

This will affect loans at a later time because banks are reluctant to provide credit to customers who have a history of bad credit cards.

6. Create a Financial Plan
It often happens that someone who is in debt everywhere is confused about what to finish. Because debts were scattered in many places and bills came in without pause, they couldn't think straight.

This is where you have to start arranging a financial plan, especially for debt repayment. If you can't afford a financial consulting service you can analyze yourself. Start by writing a list of debts, sorting from highest to lowest loan amount along with interest.

Recording a history of debt will make it easier for us to determine the priority scale, in which debt must be repaid first. Prioritize debt with the largest interest, so that the interest that runs will not swell.

But if you think you can solve a small debt shortly, that's fine. The most important thing is to make a target of how and when the debt can be paid off.

7. Take Over Credit / Payable
If the most burdensome debt is a large long-term debt such as a mortgage, there is nothing wrong with taking a step back by deciding to take over credit or sell a house that is in installments.

This is done if you can't cover the number of your home installments with your current income, or you suddenly have a job termination that puts you as unemployed, so you have to go into debt to support your life.

Take over credit for valuable goods ownership loan products, apart from being able to free from debt, also allows you to get the cash that can be used for business capital.

Generally, the increase in property prices each year is higher than the interest rate. This means that the increase in asset value can cover the cost of borrowing debt and possibly also leaving cash.

Those are some tips you can do to pay off debt quickly. Try not to apply for credit for consumptive needs. Instead, save or take profitable investments. Use credit cards wisely and don't be late so you don't get into debt.

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