Strategies that can help you manage your debt situation better/ Repay Loan

Strategies that can help you manage your debt situation better:

Repay high interest loans first

As a first step, you need to prioritize the repayment of your loans. Make a list of all outstanding loans and then identify the ones that need to be tackled first. Ideally, start by repaying the costliest loan.

 

Increase repayments with rise in income

One simple way to repay your loans faster is to bump up the EMI with every rise in your income.

 

Use windfall gains to repay costly debt

Received a fat bonus? Do not splurge on the latest smart phone or newest plasma TV. Use the money to pay down your debt aggressively. Windfall gains, such as income tax refunds, maturity proceeds from life insurance policies and bonds, should be used to pay costly loans like credit card debt or personal loans.

 

Convert credit card dues to EMIs

Credit cards are convenient and give you interest-free credit for up to 50 days. However, they can also burn a hole in your wallet if you are a reckless spender. If you regularly roll over the credit card dues, you shell out 3-3.6% interest on the outstanding balance. In a year, this adds up to a hefty 36-44%. If you have run up a huge credit card bill and are unable to pay it at one go, ask the credit card company to convert your dues into  EMIs. Most companies are willing to let customers pay down large balances in 6-12 EMIs.

Use existing investments to repay debt

If your debt situation becomes bad, you can use your existing investments to make it better. You can borrow against your life insurance policy or from the PPF to pay off your loans. The PPF allows the investor to take a loan against the balance from the third financial year of investment, and the same is to be repaid within three years.

Consolidate or refinance

It can be quite challenging to keep track of EMIs and interest rate changes if you have multiple loans. Missing an EMI means penal interest and a bad credit score. Consider consolidating all your debt, which involves combining several loans into one single loan.

The idea is that you avail of a loan with a much lower interest rate than that being paid on existing loans. Apart from the lower rate, having a single loan will offer greater ease in repayment. For instance, if you have a huge outstanding bill across multiple credit cards, you can approach a lender for a personal loan, where the entire outstanding amount can be repaid at a much lower rate than your credit card.

 

Make lifestyle changes

It is often the little things that go a long way in keeping your finances in fine fettle. While so far we have discussed different ways in which you could reduce your loan burden, you may also need to make some lifestyle adjustments to accommodate your loan repayments and ensure you have enough money to pay higher EMIs. A lifestyle change is needed until all debts are repaid. This means cutting down on luxuries and unwanted spending. Go slow on movie shows, dining out and weekend getaways. Keep the credit card locked up when you go to the mall and try to make purchases with cash.