India's economy has undergone a significant transformation over the years. This has also led to a change in consumption patterns and the way customers view credit. According to data, India's credit economy is witnessing a significant increase with approximately 22 million people applying for credit opportunities every month. While credit can provide remarkable assistance in assert creation, it is also easy to get carried away and enter a cycle of debt.
Follow a few simple steps on how to manage loans and prevent yourself from falling into the debt-trap:
The key to getting out of debt is prioritizing. Prioritize loans based on their rate of interest rate ranging from highest to lowest, repayment tenure, EMIs etc. and stick to it religiously. Tackling loans with the highest rate of interest first helps in reducing the interest payable thus indirectly reducing the loan burden. Repay each loan and tick them off your loans to be repaid list. The technique of clearing the most expensive debt and then moving on to the next item in your list is known as debt avalanche. While tackling the most expensive loans first, ensuring that you do not miss out on EMIs of other loans.
Direct any significant increase in income towards repaying your loans. One of the best ways of doing this is by increasing the value of EMIs with every increase in income. Even a seemingly small increase in the value of EMIs helps in reducing the amount payable and helps in closing the loan months or even years earlier than previously planned.
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Prioritize repaying your loans and do not give in to the temptation of splurging money on frivolous expenses. Windfall gains consist of unplanned circumstances that ultimately lead to an increase in your income. Won a lottery? Resist the urge to spend money and channelize the gains or at least a part of the gain towards honouring your loan. In some cases, you might not be required to pay a penalty on the prepayment of loans. However, in case you are required to incur a penalty on the prepayment of loans, compare the amount saved in the form of interest over the penalty payable. Finalize an option that helps you repay your loan and release you from debt at the earliest.
Are you repaying more than one loan at the same time? What if I told you opting for another loan can help you avail a lower rate of interest and manage repayments more efficiently? Consider opting for a personal loan for debt consolidation of multiple loans into just one loan at a much lower rate of interest. The cherry on the cake is that you will require to track one loan instead of multiple loans simultaneously. Fullerton India offers competitive balance transfers on personal loans. Use our online personal loan eligibility calculator to estimate the maximum amount you may be able to borrow or our personal loan balance transfer calculator to understand how transferring multiple loans to a sible one with Fullerton India could help you save on EMI as well as interest.
If the mountain of debt becomes unbearable or an investment is performing poorly since an extended period, consider liquidating investments to pay off debt. One could also consider borrowing against long-term investments like PPF and insurance to pay off debts.
Credit cards are a boon but can burn a hole in your pocket if you do not use them prudently. Credit cards are an expensive form of debt and can generate huge outstanding balances. In case you are unable to pay your credit card dues, credit card companies offer you the option of converting your bills dues into EMIs. This helps in breaking down your loan into smaller manageable payments but also helps you reap the advantages of lesser interest payable as compared to late payments.
Stay committed towards your goal of making payments on time. Automate payments, if required. This will not only help in reducing the debt payable but also helps in reducing interest payable, late payment penalties etc. Also, always make sure that you pay the full EMI amount or the total outstanding amount on your monthly credit card bill. Paying the minimum amount due should only be exercised when you don’t have any other option, because interest starts getting added on the remaining amount. This is especially true of credit cards.
Purchase an insurance policy to safeguard your as well as your family's interests on the happening of unfortunate events. A term insurance policy will ensure that your family's daily expenses and other financial goals are not compromised. Also, a good health insurance coverage for all family members ensures that you can get timely medical treatment during emergencies without having to take on expensive loans.
A little planning with responsibility will ensure that you can enjoy the benefits of credit while ensuring that debt does not wreak havoc in your life.