Tips that may help you remain debt-free and save more in 2023

It's the time of the year when most of us are gearing up to make New Year's resolutions. Go beyond typical resolutions like smoking cessation, giving up alcohol, quitting junk food, and hitting the gym and consider adding personal finance and financial goals to your Resolution 2023! Let us look at the top two priorities essential for remaining debt-free and saving more money in 2023. Financial discipline and a good credit score often go hand in hand.

Reduce your debt burden

Nowadays, taking a loan is a click away. Taking a personal loan has become much easier due to the emergence of loan Apps, Online aggregators and lending startups. Like accidents are unexpected and untold, economic crises, financial problems, money troubles, and business burdens are unplanned. When facing a crisis, like job loss, business losses, unforeseen medical expenses or other emergency financial burdens - many of us have little option but to borrow money from private lenders or take personal loans from banks to meet our goals.

However, prudent borrowing always helps to build your credit history. Having a good credit history leads to a good credit score, and eventually, it makes it easier and cheaper to obtain loans and get credit cards simpler. While changing times, automation, and new-age financial products have altered how loans are sanctioned and disbursed, the fundamentals and principles of prudent borrowing remain unchanged. It still doesn't make sense to borrow if you don't need the money. One's monthly EMIs towards all loans should not exceed fifty percent of one's monthly income.

One cannot focus and work towards financial goals if one's EMI eats up most of the monthly income. As a result, some vital financial goals like retirement planning, buying a house and emergency funds may be impacted. If the loan amount is lying idle and waiting to meet the purpose of the expense, keep the amount in an interest-earning savings bank account or short-term fixed deposit. This way, one can earn some interest on the money borrowed. Pay off your personal or car loan in whole or part ahead of schedule whenever you get unexpected money like a bonus, business profits, earnings from the share market and other sources of income.

Pay up credit card on time

Every month pay your credit card bills in full and on time. Paying the outstanding amount you owe to the card issuing bank and being consistent are the most vital factors in getting a favourable credit score. Carrying the card balance from month to month is very expensive. Credit card holders can change the billing cycle or adjust the payment dates of their billing cycle once in a lifetime. One can opt for this facility and set the due date immediately after a payday in the first week of the month. Late payment fees and finance charges attract in case of non-payment of the minimum amount due amount. Credit card companies levy interest charges @ 30 per cent and above if cardholders fail to repay the credit card bill by the due date. Non-payment of the total amount may also revocate the interest-free period on future transactions.

Easy and simple access to personal loans and credit cards may take a toll on financial discipline and result in haphazard spending, reducing savings. To keep a tab and lessen the debt burden, list down all loans, credit cards and other debts, including the total amount of liability and due date and pay in full and on time. When EMIs or loan instalments are paid before the due date, credit card payments are made within the due date of a particular billing cycle can help improve a credit score.

Having a credit card or a loan on which all the payments have been made on time may create a good credit history for you and help improve your credit score. The lower your credit score, the costlier your loan is, as lenders take your financial situation to their advantage by charging a higher interest rate. Some banks and private lending startups may even reject your loan application and refuse to lend due to your low credit score.

An emergency fund is a financial safety net, an essential corpus of money for unexpected expenses. One should keep aside an emergency fund to take care of expenses for six months and to tackle unplanned, uncalled-for situations. Keeping an emergency fund is essential for persons with only one source of income. Follow your goals, and stick to your resolution in order to create a happier and healthier life in the New Year and beyond.

(The author is a SEBI licensed Research Analyst. The alumnus of the Indian Institute of Foreign Trade (IIFT), he had held leadership roles at National Geographic, Reliance Radio Television Luxembourg, STAR TV, etc)