- July 28, 2022
- Posted by: Ghanshyam Jha
- Categories: CIBIL Score, Credit Card, Loans
We all are living in the world where you do not need to wait for fulfilling you dream till you create a corpus for it. Rather, you fulfil your dream now by borrowed money and repay a loan for long tenure. You also face emergencies and need urgent funding. However, if you already have loans matching your maximum repayment capacity, you face great difficulty in availing a new loan from banks and NBFCs. Then you are compelled to approach local lenders who charge from 24% to 120% annual interest rates.
However, If you take care of the important aspects related to management of your loan portfolio, which will be discussed in succeeding paragraphs, you will not only be able to manage your requirement of finances but also your credit score will be always excellent. It will ensure that most of the lenders will be happy to provide your loans at attractive interest rates. So, let us have a detailed and meaningful discussion on this very significant topic. We will deliberate upon 10 ways by which you will not only be able to manage your burden of loans but you will also be able to achieve your short term, midterm and long-term goals as well.
10 Reasons How You Can Stop Stressing About Loans
Increase the amount of EMIs
We know it fact that salaries and income from business increase with change in two factors- firstly with inflation and secondly with the increase in volume of salary of business. We generally see that your lenders find out your repayment capacity as per your present net income. So, when you feel that your income has increased and you can spare some amount of money without compromising with your present lifestyle and mandatory savings, you should begin to increase in repayment and try to increase the amount of EMI so that your loan tenure is decreased significantly. Especially the tenure of your loans which attract high rate of interest should be decreased to max possible level.
Lump sum Gain to be used in Repay Bad Loans
Friends, do you know what is bad loan?Bad loans are the one which attract significantly high rate of interests as compared to the rate of interest in saving instruments like FD, PPF and other saving schemes. Now, it is not logical that you are paying more interest in your loan and getting less in savings. In such conditions, you need to utilise your fund, which is received as arrears, bonus or any other form of windfall income, to make full or part prepayment of bad loans. It will decrease your burden. If you do not do it, you will end up spending the windfall gain into impulsive and voluntary spending.
Invested Corpus to be Used to Repay Loan
In case you are heavily burdened with one or more loans, you need to repay the loan which attract highest interest. For this, you may utilise your present corpus which is invested in various saving schemes. It will not only ease out your EMI burden but also will enable you avail loan for future exigencies. Even if you think that you do not have enough amount to prepay the loan, make part payment and restructure loan to decrease loan tenure or number of EMI.
Your EMI Should be as Light as Possible
Let’s say your net monthly income is Rs 1 Lakh. Now you need to make sure that your EMI payments to financial institutions and your alternate lenders like family, friends should not cross Rs 60,000/- per month. Rather, you should try to keep it within Rs 50,000/- per month. It will ensure two things, first, your stress level will not rise and second, you will have the leeway to avail loan in future for any unforeseen and unprecedented needs. Hence, you need to avail max tenure if you can not decrease loan amount and restrict your percentage of EMI within 50% of your net monthly income.
Choose Loan which has Easy Foreclosure Conditions
When you avail any kind of loan from banks or NBFCs, you need to sign on various agreements. Generally, you don’t pay much attention to its content. It is a big mistake. You need to make sure and negotiate with lenders that the terms and conditions for loan foreclosure are in your favour. Let’s take an example. Generally, for Personal loan, foreclosure charges are from 1% to 5% of your outstanding loan amount. So, choose your lender carefully, especially if you have an excellent Credit Score.
Generally secured loans have longer tenure than unsecured loans. Also, there are income tax rebate and other benefits in case of Home loans. Hence, you need to be very careful to choose loan tenure and also need to ensure that your loan has enough flexibility for change in tenure in the mid-way. This is an essential element in loan terms and conditions because you may have a significant increase or decrease in your future income. So, in case you increase your income more than your expectations, then you need to either repay loan or decrease the loan tenure. In case your income is decreased vis-à-vis your present income, as happened with most of us during COVID, then you need to increase your tenure so that your EMI amount is decreased significantly.
Whenever there is an urgent need of money and you feel that you are already heavily burdened with existing EMIs, you are stressed and don’t know what to do. In such a situation, take a pen and paper, write down your present EMI amount and calculate the restructured EMI when your loan tenures are restructured to optimum tenure possible. It will give you instant solution and you may be able to spare enough money to meet the urgent need. For this, you need to visit your lender and ask them to restructure your loan. They are a little hesitant about it. However, once you stress upon it, lenders will restructure your loan. Balance transfer of your existing loan to another lender with additional cash amount is also a good and viable solutions particularly when interest rates of new lender is suitable and prepayment charges of present lender is reasonable.
Most of us don’t even know that there are insurance schemes to cover a large amount of loans. They are known as ‘Loan Insurance’. Once the customer buys such policy, he gets risk cover of repayment of the outstanding loan amount. Such insurance policies should be bought especially when you are availing loans of 10 Lakhs or above. It will make sure repayment of loan after loanee is unable to pay due to some eventualities. Thus, the repayment burden will not be passed on to loanee’s next of kin. The policy cost is very little if you compare it with the benefit of insurance cover.
Convert into EMI to your Bigger Purchase on Credit Card
At times, your finances are so squeezed that you may not be able to pay Total Amt Due (TAD) of your credit card by due date. At the same time, you also do not want to pay Minimum Amt Due (MAD) continuously because it will have a negative effect on your credit score. There is a way out for it. Convert your purchases into EMI by calling customer care before bills are generated. Most of the Credit Card bills are generated on 16th to 18th of each month. Converting purchases of credit card into EMI will have two major effects. First, payment will be divided in to 3 to 48 months. Hence payment will be easier. Secondly, it will reduce your TAD significantly, thereby negative effect on your credit score will be nil or negligible.
Necessary Changes in Lifestyle
We all know that most of us, who survived COVID-19, have learnt how to live life with minimum resources. Similarly, when you are in financial distress, a very strict control over expenditure is needed. Once you receive salary/ monthly income, please prepare your mandatory expenditure including your EMIs and savings. Thereafter remaining amount was spent judiciously after keeping some amount saved as an emergency fund. This will not only make your financial condition healthy but also curtailing eating out and frequent partying will make you healthier.
Urgent need of funds for medical expenses or is very common nowadays. It costs you dearly. Hence, you need to make sure that you buy a comprehensive medical policy for the entire family if you are not covered under medical cover of government / employer’s schemes. You may think that you save a good amount of money by not buying medical policy. In such a scenario, you need to discuss it with those who have lost lakhs of rupees to fight Corona. Medical policy will always prove to be very beneficial.
I must say that all of you make a resolution to implement 10 ways to make your finances healthiest. It is guaranteed that you will witness significant positive changes in your finances after few months. Once all these 10 ways become your habit, it will pave the way foy you to create wealth and achieve all your goals well in time. Remember, currency never stays at one place. It needs to be earned and utilised judiciously in making your life easier and allocating funds for adequate savings for unforeseen troublesome days. So, earn more and spend within your income.
Best wishes to all.