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Conduct a periodic review of your debts, and take stock of your current financial situation. You need to list your debts, expenses, investments. See if your debts are hindering your financial plans. List and assess your debt and then prioritize them.
Draw up a plan to pay them off soon.
Prioritizing and Restructuring for Long-Term Benefit
Do you have a lot of loans running? Do they include credit card loans and Personal Loans? Are you also paying EMIs on Personal Loans and car loans? How do you decide which are important?
The answer is they are all important, but some need to be cleared at once to reduce your financial burden. Secured loans like Home loans and car loans are high-priority debts. You need to plan for making on time EMI payments to avoid foreclosure and risk losing an asset.
However, these are secured loans and so cost less in terms of interest rates. Credit card loans, card dues, and Personal Loans are all expensive debts, they come at a huge rate of interest. Focus on paying them off sooner to save on interest.
Debt Consolidation Loans
If you have too many unsecured loans, get a Personal Loan to consolidate all your debts if possible and pay off the expensive loans fast. If you have enough equity on your home, you can also think about the top-up loan.
Clear your high interest debts first, like credit card cash advances, and Personal Loans. Once you pay off at least one or two of these debts, your interest outgo would be reduced significantly. You will be paying a lesser interest rate on Personal Loan the debt consolidation loan, helping you manage your finances better.
Extra Funds
If you suddenly get access to extra cash, make prepayments on loans. Use the allowed prepayment each year to reduce the loan amount and pay it off quickly.
Refinance Loans
If you are paying higher interest on Unsecured Personal Loan than the prevalent rates, see if you can find a lender willing to refinance the Personal Loan at lower interest rate.
Estimate cost of refinancing. It could involve a large prepayment penalty to your current lender. You may also need to pay a processing fee, legal fees and other charges while transferring the balance to the new leader. If these costs outweigh the amount you can save through refinancing, don’t go for it.
Cut Back on Expenses
Keep up with EMI payments and do not borrow too much. If you are facing financial constraints, cut back on travel expenses. Avoid buying the new model of your smartphone, wait for next year’s model.
Use the saved cash to pay off loans. Pay back the money lent by your friends and relatives. If you still have money left, save them as emergency funds.
Make a debt plan and reduce loan EMIs and card dues first. You can then focus more comfortably on meeting your investment goals.
