Getting a quick loan is super easy nowadays, but there is a flip side to it as well. People don’t understand that getting a loan, whether it’s traditional or personal, translates to paying more interest if you don’t take care of a few important things. In this blog, we will discuss how you can pay off your loan faster and become debt-free using some simple yet effective techniques.
Prioritize your Loans:
Traditional bank loans generally have a longer tenure and low-interest rates, while personal loans have the opposite. They do not require collateral or assets to be shown before being obtained. Hence, if you have taken both loans together, it’s better to pay off the personal loans first and then the traditional loan. We can also pay off the traditional loans faster, which we will discuss in the upcoming points.
Try Increasing the Loan Tenure:
This advice might sound counterintuitive, as increasing your online loan tenure means your interest rate will also increase considerably. But at the same time, your EMI will also reduce. This way, you can pay off your loans with high interest rates first with that extra money in hand.
Make a Budget:
You can get a loan simply by using any online loan app which can be repaid easily if you have a budget. Making a budget is boring, but it works like a charm. Here, you must understand that your loan EMI amount should not be more than 30% or a maximum of 40% of your income. You should follow the simple 50:30:20 rule of budgeting. 50% of your income should go into your needs, which includes loan payments, 30% into your wants, and 20% into your savings and investments. We must learn to control our desires/wants in those 30% of our income.
Pay an Extra EMI Every Year:
In the initial part of your loan repayment journey, a major part of your EMI goes into paying your interest amount. As time passes, the principal amount keeps increasing, and the interest amount in your EMI keeps reducing. This creates a problem when your loan tenure is high, as the interest you end up paying becomes more than the principal amount. For example, for a 40 lakhs rupees loan with an 8% interest rate for 25 years, you would end up paying an EMI of Rs 30k/month and a total interest of a whopping Rs 52 lakhs.
So, if you pay just one extra EMI every year, your total interest will be reduced from Rs 52 lakhs to approximately Rs 38 lakhs. You would end up paying your 25-year loan in just 20 years. The extra EMI you will be paying at the end of the year fully goes towards your principal amount. If you pay two extra EMIs every year, then your loan will be paid in just 16 years, considerably reducing your total interest amount. This is a very effective way to pay off your personal loans credit in a matter of few years.
Increase your EMI % Every Year:
If you increase your home loan or student loan EMI amount by just 5% every year, your total interest amount would be Rs 28 lakhs, and the loan would be paid in just 13-14 years. For example, if your EMI in the first year is Rs 30,000, then in the second year, it would be Rs 31,500. Similarly, you keep increasing your EMI amount by 5% every year.
If you do both, i.e., increase your EMI by 5% every year and pay one extra EMI every year, then your interest would be Rs 26 lakhs, and your 25-year loan would be paid in just 12.5 years. This is the power of paying extra proactively.
To wrap up, paying off instant credit loans faster demands discipline and strategic planning. Prioritize loans, adjust tenure smartly and budget wisely, and implement tactics like extra EMIs and gradual EMI increases. Proactive financial management is vital for reducing the total interest paid and swiftly achieving debt-free status. Whether it’s for education or home loans, the aim is clear: settle loans promptly, saving time and money in the process.