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How to get out of your Personal Credit Crisis? [Personal Finance]


Times are bad and you don’t need a blog post to tell that!

This blog post is all about suggestions for you, to lead a healthy and successful financial life.  By no means this is a comprehensive list, but sure to provide a start.


Beware of Credit Cards !!

Credit Cards are very useful and at the same time, highly misused tools in the financial world.  They are supposed to be used as alternatives to cash, to prevent you from carrying too much of them but not when there is NO cash.  Certain thumb rules of Credit Card usage are:

  • Never use Credit Cards when you are out of cash, unless absolutely necessary
  • Never, ever withdraw cash with your Credit Card.  It is one of the costliest credits you can ever get…
  • Always pay off the entire amount on your Monthly Credit Card Bill.  Defer payment only when it is absolutely impossible to pay it off
  • Be extra careful about revealing your Credit Card details on websites or over the phone.  Finally, you and only you will be responsible for any misuse and pay off
  • Never use Credit Cards for expenses that are more than 50% of your monthly earnings, unless absolutely necessary
  • Final word – Avoid Credit Card usage when possible !!

Follow the 1/3 Rule

It is not just about earning huge sums – it is all about what you do with it.  All of us have commitments and mandatory expenses.  Here is a simple rule on how to better manage your spending:

  • Use 1/3 of your monthly earnings for all your expenditure needs
  • Use 1/3 of your monthly earnings for all your investment needs
  • Use 1/3 of your monthly earnings for all your saving needs

I am sure this is good for a start and you can build on it as you move along.

Foreclose your Loans whenever possible

It is hardly possible for any of us, to live without loans.  Auto Loans and Home Loans are order of the day and you can rarely get out of this virtuous cycle.

Whenever you take a loan, clearly understand the foreclosure norms for that type of loan.  For example, if you plan to repay the entire loan in say 6 months of time, what would be charges levied on you.  And, whenever you have sufficient balance in your savings kitty, the first thing you should consider doing, is to get out of debt.

New Loans to Close existing Loans – A Strict NO NO!!

It may be tempting to go for fresh loans, to close some of your existing loans as you are tired of repaying them.  Avoid this deadly practice, as much as possible.  Sometimes, it may be fruitful if the rates of interest for the new loan are drastically less than the older one.  But many a times, you will end up losing more money than repaying the original loan.

Another similar catch, is to transfer credit card balances from Card A to Card B.  Again, there are lot of loopholes here and ultimately you might stand to lose more money.

If you definitely have to do any one of these, exercise extreme care !!

Maintain a Note of your Daily expenses

I know many of us have it as part of our New Year resolutions!!  But sadly, many of us don’t succeed in putting this into practice, throughout the year.

This primarily serves two purposes:

  • Getting a grip on where your hard earned money goes
  • Identifying some unnecessary expenditures towards the end of a month and work on avoiding them

Hope you found this post useful.  Feel free to add in additional points, as comments to this post.

Photo Credit:Andres Rueda