Before 2019 draws to a close, it's time for you to evaluate how much debt you still have. If your debt burden is higher than 40 per cent of your income, it can be quite overwhelming.

However, with 2020 bringing a fresh chance for you to emerge debt-free, there are a number of surefire ways you can adopt in order to pay off your debt. If you are interested in finding out, keep reading!

To be honest, certain kinds of debt are fine. For instance, a Home Loan for moving into your dream home or even a Student Loan for earning a degree are healthy debts as they are connected to some sort of a goal. The real question is, how much debt is fine?

As 2019 is about to end, this is your time to evaluate your debt-to-income (DTI) ratio. For those who are new to this term, it is the ratio of your debt against your income. Calculating your DTI ratio is the first step to adopting debt-control strategies.

Simply divide the total of your monthly debt by your monthly income (remember to take away your CPF contributions!), yielding a percentage. A DTI greater than 40 per cent of your annual income can be concerning. In addition, one of the surest signs of trouble is if your debt is constantly piling up and giving you sleepless nights!

HERE'S HOW TO TAKE STOCK OF YOUR DEBT SITUATION BASED ON YOUR DTI 

If your DTI is below 15 per cent, the debt burden is in the affordable debt range in comparison to your earnings. With timely payments, you are likely to clear off your debt soon!

If your DTI is in the range of 15 per cent-39 per cent, it's time to take action and lower your debt load. No need to panic as things can still be handled if you take measures. Seeking advice from a credit counsellor may prove beneficial!

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If your DTI is 40 per cent and above, it can be considered as a high-risk debt! However, there are still ways to get your finances back on track! Keep calm and read on as we have explored some tried and tested ways to clear off your debt even at this stage.

Now that we have covered why debt control is a crucial component of your finances, let's explore some of the ways you can get out of debt in 2020!

SOME POPULAR DEBT-CONTROL STRATEGIES TO BOOST YOUR DEBT PAYOFF IN THE NEXT YEAR

1. Snowball Method: By this method, you are supposed to pay off your smallest debt first, followed by the next big debt and so on. Eventually, you will establish enough momentum to pay off the sizeable debts.


2. Avalanche Method: This is the exact opposite of the snowball method. This involves you paying off your debts in order of the highest interest rates first. This will help you pay less interest over the course of your debt payoff journey. In addition, you'll end up saving more money on interest, besides emerging debt-free, faster.


3. Consolidation: This strategy involves the clubbing of diverse, long-standing debts into a single new one, preferably at a lower interest rate. Ideally, this strategy is directed at making your debt repayment more manageable. If you opt for this method, you can make the most of balance transfer facilities on Credit Cards and Personal Loans.


4. Debt Handling: Opt for this method only if you're faced with a mountain of debt. This strategy involves negotiation with your lender for a reduction of the interest rates or a decrease of the payment amounts. Consider the two possibilities that emerge here.

In the first one, the debt amount is reduced. In this case, you will end up paying a partial balance instead of the total amount you initially owed the lender. Therefore, your debt will likely be treated as debt settlement, which is typically regarded as a negative factor on your credit report.

In the second scenario, the lender will have reduced your interest rate. In this case, you'll still be expected to repay the outstanding balance in full. If you continue making payments as per the new terms, you'll be spared of a negative impact on your credit history.

SOME OF THE SIGNS TO WATCH OUT FOR IF YOU ARE STEEPED IN DEBT! 

• If your debt balance is not reducing irrespective of you making regular payments
• If you are crawling from one paycheck to the next, leaving you little or no money at the end of the month
• If you quit contributing to your employer-sponsored retirement plan and instead, rely on that sum of money for monthly expenses
• If you are struggling to build an emergency fund of at least Rs. 40,000 to safeguard against financial turbulence
• If you are relying on withdrawing money from your Credit Card
• If you frequently find yourself borrowing money from friends and relatives

If you find yourself under any of the above scenarios, chances are that your debt is becoming problematic and coming in the way of a solid financial footing! To prevent things from getting worse, it's wise to seek help for debt management!

This article was first published in BankBazaar.