Today, you have a loan product for almost anything in the world. If you want to buy a house, you have the pre-approved Home Loan offer available online. Buying a car is no longer a dream as you have car loans available in plenty. Going for a higher educational qualification has also become easy because of the education loan facility. You have consumer loans for catering to your lifestyle choices. Business Loans help you do business. For all other purposes, you have the Personal Loans and Credit Cards.
Applying for various loans is also easy today. You have facilities to Apply for a Home Loan Online. You have banks approving and disbursing Personal Loans into your account within 72 hours. It is up to you to repay these loans on time and build up your credit ratings.
Repaying your debt should not be a problem at all, especially if you have a steady flow of monthly income. However, you can take steps to repay the loan faster and save interest. Here are some ways to do so and become debt-free as early as possible.
Revisit Your Loan Portfolio and Prioritise Your Debt
Sit down and prepare a list of the loans you have along with the rates of interest and monthly EMIs (Equated Monthly Instalments). Note the leftover repayment tenure as well. You are now ready to prioritise your loan repayments. Remember that you have to pay the EMIs of all loans as the minimum payment.
If you have additional funds left, you should opt to settle the loans that attract the highest rates of interest. The Credit Card liabilities are interest-free as long as you pay the entire bill amount on time. However, they have the highest rate of interest in case you allow the debt to roll over.
It can go to over 40% per annum. Hence, it makes sense to settle the Credit Card dues first. The Home Loans have the lowest interest burden. Also, they fetch you attractive benefits by way of income tax concessions. Therefore, you can keep this loan for a longer time.
Plan Your Pre-payments Properly
Pre-payment is a situation where you repay a portion of your principal amount over and above your regular EMI. Prepaying your loans can significantly reduce your loan tenure and interest liability. Consider this simple example.
You have a Home Loan of Rs. 40 Lakhs @ 9% repayable over a period of 240 months. Your regular EMI works out to Rs. 35,989 per month. Your total interest outlay over the entire tenure of the loan is Rs. 46.37 Lakhs. If you repay your EMIs on time, you will have an outstanding liability of Rs. 38.43 Lakhs at the end of 24 months. You receive a bonus of around Rs. 2 Lakhs. Use this amount to prepay your Home Loan. By paying this amount at the end of the second year, you will save an overall amount of Rs. 2.04 Lakhs as interest. You end up reducing your loan tenure by over a year.
Increase Your EMI
Usually, your income increases on an annual basis as you get increments and promotions. Use the enhanced amount to increase your EMI. Increase your EMI payment by a mere Rs. 5,000 per month. You end up closing the Home Loan 5 years ahead of schedule. Your total interest outlay will come to around Rs. 33 Lakhs. Thus, you save nearly Rs. 13 Lakhs in interest by paying Rs. 5,000 over your regular EMI every month.
Control Your Spending on the Credit Card
Credit Cards are handy instruments. You can use them in an emergency. However, you should remember to pay the monthly bills on time. Making a part-payment of the bill can pull you into a debt trap. It is because this facility has the highest interest rates in the industry. It can go up to 40% per annum.
Hence, try to come out of the debt trap as quickly as possible. In case you have a Credit Card debt, refrain from increasing the deficit by using the card. Switch over to cash purchases or use your debit cards instead. It is advisable to maintain your credit card borrowings to around 20% to 25% of your Credit Card limit. It not only keeps your debts manageable but also helps to maintain your credit rating.
Explore Cheaper Options
Check the interest rate on your Home Loan. Are you still paying interest at 12% when there are lenders offering Home Loans at 8.40%? A difference of even 1% over the entire tenure of the loan of Rs. 40 Lakhs can save you a huge interest cost. You can end up repaying your loan at least 2 years in advance.
We have seen simple ways to pay out your debt faster. Follow these tips to reduce your loan liabilities.
Also Read: 8 Unique Renovation Ideas for Your Home