The ongoing covid-19 pandemic has ushered several Indian households into financial stress. Employers have implemented salary cuts; businesses have faced a hit owing to lockdowns. Owing to this, servicing loans has become difficult for many borrowers. If you are in a troublesome situation, you need to come up with a plan to manage debt. Being overwhelmed and over worrying will not help. A pro tip is to take stock of all loans. Rank them by interest rate—a credit card, for instance, would be the highest, then a personal loan followed by a vehicle loan.
You must focus on the debt with higher interest first. The reason is paying off debts that have the highest interest rate is a simpler affair. It brings down the EMI outgo. Once an individual clears debt with the highest interest rate, he will have more money in hand.
Some researchers have discovered that a reverse strategy works for some. Instead of paying the debt that levies the highest rate of interest, you repay the loan that seems the easiest. It works for some as it gives a sense of progress. When one loan has been repaid, the borrower is motivated to get done repaying other loans.
If you can avail of a loan at a lower interest rate to pay off the debt, evaluate it. Let’s consider that you have both a vehicle and personal loan, a credit card outstanding, and a mortgage loan. You can approach your lender who has sanctioned the mortgage loan and seek a top-up. You can consider availing of a loan against existing fixed deposits or other similar securities. These tend to have a relatively lower interest rate than credit cards or personal loans.
Refinance Your Mortgage Loan
One of the ideal ways to repay a mortgage loan early is to consider refinancing. If loan interest rates drop since you had availed of the mortgage loan or your credit improves, this can be a smart move on your end. Contact lenders to know about their refinancing policies. It’s important to note that refinancing makes sense if it can help pay the mortgage loan faster. You can make this happen by cutting down the life of the loan. You can afford to do that easily with a lower interest rate. Another way to satisfy the same goal is keeping the loan tenor unchanged but with a lower monthly payment by employing one of the tricks mentioned above. This will help shorten the overall life of the loan.
Boost Your Earnings and Use the Extra Money Toward Repaying Your Mortgage Loan
A wonderful way to cut short the life of your loan is to work on making more money to make extra payments on the existing mortgage loan. You could consider starting a small side business. You could also sell products on eBay or Amazon. Say NO to impulsive purchases and save aside some money in a separate piggy bank for your loan, or embark on freelance opportunities if you have time. Triumph over existing loans by using one or more of these tricks and tips to reduce the tenor and pay much lesser interest. Remember that you always deserve to save more of your money!
Save More for a Higher down Payment
When you are considering availing of a mortgage loan, try and save 20 per cent or more of the price of the property. You can use this amount to make the down payment. A higher downpayment coupled with higher EMI amounts will help you repay the loan much faster than what it would take if you made a nominal down payment and opted for lower EMIs.
Make More Frequent Payments on Your Existing Mortgage Loans
Most repayment tenors begin from 10 years and go up to 30 years in the case of mortgage loans. Instead of going for the longest tenor, you could try to opt for the lowest option. In such cases, you will be on track to repay the loan in a decade. Make use of an online mortgage loan calculator to select a tenor that allows the EMI to fit your budget. Also, factor in other expenses you might have in the future, such as marriage or your child’s education.
Use Unprecedented Earning to Make Mortgage Loan Part Payments
Be it your holiday bonus from work or an income tax refund, a guaranteed way to lower your mortgage loan liability is to make use of these earnings to pay off the loan faster. This will not affect your expenses or the monthly budget. If your lender does not charge a penalty or levy ad hoc part payments you make, then you must opt for this strategy. All you need to do is, inform your lender that some extra payments could come through in a financial year.
What would work for you is up to you to decide. However, if your debt is piling up, ensure that you have a plan to finish it.
