Pay off your expensive loans: Credit cards and personal loans are some of the most expensive debts that you can have. The annual interest on a credit card can be as high as 42 per cent, while a personal loan can charge up to 19 per cent per annum.
“Pay off these loans as fast as you can,” says Gaurav Mashruwala, a certified financial planner.
Anil Rego, chief executive officer and founder, Right Horizons, agrees. “Personal loans are also of a shorter tenure, so one would end up with a higher EMI (equated monthly instalment),” he says.
Mashruwala recommends reviewing your balance sheet to liquidate investments where the returns are lower than the interest on loans that you have. “Supposing, you have a fixed deposit that gives you 7 per cent interest and you have a car loan that charges you a 15 per cent interest rate, liquidate the fixed deposit to pay off your car loan,” he adds.
Rego advises caution. “Sometimes, loans, such as car loans, are subsidised. However, this comes at the cost of discounts. If you already have one, then look at what the interest rate is. Understand the pre-closure charges before pre-payment,” he says.
Tips to remain debt free:
>> Stagger your asset purchases, especially property. If you have Rs 10 lakh in your bank, may be, investing in a plot in the outskirts could be a good idea. In fact, this might provide you the best return.
“If you are buying a larger house, one option is to look at the present real estate investments that you might have. This may also help you save capital gains for reinvestment in a house as per the tax laws,” Rego adds.
>> Look at whether any existing investments can help in building up liquidity for your requirements.
>> You must do some financial planning that requires discipline.
“At the beginning of the year, try and set up a budget for yourself. Instead of purchasing items and then paying EMIs, look to build a recurring deposit so that it also goes out on an easy monthly basis,” Rego says.
Mashruwala also recommends cutting down on discretionary spending. Such expenses include eating out, entertainment and shopping for things that you don’t really need.
Where you can get help? You can go to a debt counselling centre for advice on financial problems. These agencies can show you a good way to manage your finances. Debt counselling centres can also mediate between you and your lender to arrive at an appropriate solution.
nirmalyasen
@mydigitalfc.com
