If you have watched the movie ‘Confessions of a Shopaholic’, you’ll know what happens when you live beyond your means. Lured by high-end fashion, a young woman keeps borrowing until she pushes herself to the brink of a financial disaster. Well, the movie may have had a happy ending, as most movies go, but in reality, you may not be as lucky as the film protagonist - Rebecca - was.
So, if you too are in the habit of borrowing to meet your goals, sit back and think – are you able to repay your debts comfortably? Here are some tips to help you set your spending in order.
1. Repay high-interest loans first
Make a list of your debts according to the interest rates. A Home Loan or Student Loan is likely to have lower interest rates while offering tax benefits. Also, the value of a home will appreciate over time. Credit Card debts and Personal Loans, on the other hand, tend to come with slightly higher rates of interest. It is, therefore, a good idea to pay these before moving on to ‘safer’ ones.
2. Consolidate your loans
Let’s assume you have paid off your Home Loan. But you have huge personal and Car Loans, along with high Credit Card bills. To reduce the burden, look at taking a loan against the property you now own and pay off the high-interest debts. HDFC Bank, for instance, offers Loans against Commercial and Residential Property at low rates of interest that can be used for repaying other debts.
3. Got a salary hike? Increase EMIs
Whenever you get a raise at work, increase your equated monthly instalments (EMIs) as well. The more you push up your EMIs, the faster you can repay your debts – and the less you will need to pay by way of interest.
4. Got a bonus? Make a prepayment
It is tempting to splurge on a lifestyle purchase when you receive an unexpected bonus or investment return. But if you’re under a pile of debt, it would be more practical to dig your way out of it first. Any windfall should ideally go towards debt repayment. Many loans, including Home Loans, allow prepayment without any penalty. Learn more about whether you should prepay loans here.
5. Request a lower interest rate
If you’re an old and established customer of the lender and have a good credit score, try to negotiate for a lower interest rate. You might get lucky.
6. Switch loans
This is particularly valid for Home Loans. If you find another bank offering a significantly lower interest rate than your existing lender, you can consider switching your loan to the former. But do check the prepayment charge and the new lender’s processing fees.
7. Make timely payments
Paying several EMIs is bad enough. Do not add late payment fees to it. Besides, this affects your credit history. Hence, it’s a good habit to make your payments on time.
8. Cut expenses
If all else fails, this is what you should do. Cut down on avoidable luxuries such as eating out and going out on weekend trips. Lead a low-key life until you have repaid all your debts. You’ll get enough chances to make up when you are clear of them again.
Loans are serious financial commitments and should be taken up only when you are confident that you can manage them alongside other expenses. With a little planning, you can do both, enjoy life and live within your means so that creditors never hound you. A disciplined lifestyle will help you repay what you have borrowed, and allow you to live a debt-free life.