Most of us take out loans at some time in our lives. Whether it’s for business or personal reasons. It is a crucial instrument that aids in our continued personal growth. It’s wonderful that you have previously used this fantastic tool. But today I’ll give you a few simple tips on how to pay off debt more quickly, which will help you cut down on both the length of your repayment period and the amount of interest you pay.
Tips to pay off debt quickly
Pay Extra EMI
- An EMI is paid monthly, which means annually you are liable to pay 12 installments. But that is the minimum number. There is no restriction on the number of extra EMI you would like to pay annually. Even though it might not look helpful initially but when you zoom out the picture you can see the benefits.
- Let’s say you have a home loan for 25 years with a monthly EMI of ₹50,000. Just by paying 1 extra EMI annually, you could reduce your tenure by 2 years. That’s not paying 24 installments of ₹50000. One might argue that those installments are paid additionally every year. That’s right but each year you pay an Installment, you reduce your principal amount. Which means you reduce your interest component. Hence by paying Extra EMI, you can not only reduce your tenure but also reduce your overall interest. This way your can clear your debt faster especially if your loan has a long tenure.
Pay more than just EMI
- The very least that you must pay is your EMI, but you are free to pay more than that. Simply adding a few thousand rupees to your monthly payment, can significantly cut your interest and tenure. In essence, by making additional payments, your principle amount decreases, lowering your overall interest component. This set off a chain reaction. Your principle component, which ultimately determines your total interest, is reduced as you continue making extra payments each month. As a result, your overall interest amount decreases and so does the duration of your loan. This makes significant savings and settles your debt more rapidly.
Merge you debts
- If you have multiple loans going on simultaneously it could become hard to keep track. Instead, you can say take a bigger loan against your house and directly pay off all your smaller loan at once. This will help you say save money on interest and make it easier to focus on and manage one loan as compared to multiple. This can even help you with budgeting as now you have a fixed figure to pay.
Negotiate your interest rate
- For all loans, the interest rate is virtually always variable. This implies that the interest rate may rise or fall during your loan tenure. You can ask your bank to lower your interest rate if you have been paying your payments on time and in full. If your loan amount is big, even a 0.5% change might have a significant impact on your interest.
- You can even switch your loan to another bank account if they are willing to offer a lower rate of interest. But be aware of all the additional charges, such as transfer fees, etc. Make sure to compare and estimate overall savings from switching accounts.
Live below your means
- Nothing makes you feel better than being debt-free. Cutting down on unwanted expenses can help you save a few thousand rupees. And as mentioned above, if you pay this saving towards your monthly EMI, it can accelerate you towards freedom from debt. Eating homemade food over restaurants, using public transportation, and shopping as per requirements and not as per sale or temptation to buy is the easiest way to save a couple of thousand rupees each month.
Conclusion
While loans might aid in personal advancement, they can also put a strain on your finances and emotional well-being. It’s crucial to get out of debt, and following the advice above and practicing discipline will speed up the process.
If you are interested to know the different kinds of loans a bank issues then click here. Or if you would like to know the benefits of different kinds of cards a bank issues then click here.