In today’s world, it is hard to find someone who doesn’t have a loan to repay. Loans have become very popular in our society as it boosts your power to purchase and building your social status. When you get over dependent on your loans, then problems may arise. In case you have multiple loan accounts to manage, there are few points that you should consider while prioritizing your loan repayments so that you don’t fall in a trap.
Few tips to pay off your loans, so that your loans get cleared in a systematic manner –
- First, you need to list down all your active loans based on their interest rates. Loans with higher rate of interest can include credit card bills, unsecured loan, personal loan etc. Home Loans, durable loans and other small size loans carry relatively lower interest rate.
Allocate these loan accounts into two categories –
- Loans with higher interest rate
- Loans with lower interest rate.
Now you need to focus to pay the loans with the higher interest rate first followed by the lower interest rate loans.
- In any point of your life in case you earn some extra income like sale of asset, receiving some kind of bonus or incentive or if you are able to save little more than what you expected then you can plan to close all these loans with higher rate of interest by incremental payment method.
- When you have many loans to manage, trying to be less extravagant can help. For example – avoid lending money to others, donations, religious offerings, reducing social obligations of gifting others etc. can make you financially more stable.
- If there are two income sources in your family, then you need to try managing your household expenses from one income source and try to focus on your loan accounts with the other income source.
- You can always sell the things that you don’t need at your home like old furniture, old electronic devices, other unnecessary staff that are lying in your home untouched for years. Don’t buy things which are not in your immediate requirement list and focus instead to close your loan accounts.
- Its always good to maintain an emergency fund separately. Irrespective of how much amount you can save every month, it is important to keep some amount aside for this fund. With time, once you have better corpus and there is no emergency, you can always use this amount to pay your loan debts and continue maintaining your emergency fund.
- It is extremely important to budget your expenses every month so that you can track your expenses well. By doing this exercise you will be able to identify your unwanted expenses for the month and can help them cut off from your expense list.
All these points will help you to prioritize your loan repayment schedule, however we never recommend you not to pay any of your loans. For all the loan accounts that you have, regular EMI payment must be made on time to keep yourself financially stable and debt free in the future.