Paying off debt faster can be a challenging but rewarding financial goal. Here are five tips to help you accelerate the process of pre-paying your debt
1.Reduction of 10% expenses
You cannot reduce your expenses by 30%, I know that. But you can reduce it by 10%, you know that.
One of the things a person can aim at is reducing his expenses by a small margin. You should not target for a big cut, because over the long term it does not happen. If you want consistency in cutting down your expenses, it has to be small, and 10% is a good enough small cut. Try to list down all your expenses and ask yourself and your family, which of them seem to be of low value and you can cut on that. Maybe you spend too much on outings, maybe you spend on things that are not truly adding great value in your life? It may be time to restructure things and save on that.
2.Taking internal credit
- Ask Relatives for Help:
- Consider talking to your family members about your plan to pay off your loan faster. Some of them might have extra money in the bank or fixed deposits.
- Explain that you’re looking for a loan to make an early payment, and offer to pay them back with a fair interest rate. It’s a win-win situation – they earn some extra interest, and you get to pay off your loan sooner.
- Friendly Prepayment Proposal:
- Instead of borrowing from banks, check with family members who may have surplus money. Share your idea of early loan repayment and ask if they’re willing to lend you some funds.
- Offer to pay them back with a reasonable interest rate. Many people keep cash in the bank or in fixed deposits, and they might appreciate the opportunity to earn some extra interest while helping you out.
Remember to keep the conversation simple and transparent, emphasizing the mutual benefit of the arrangement.
3.Liquidating investments to pay off loans
- Smart Money Move:
- Some folks invest in plans with low returns or pay high-interest EMIs. If that sounds like you, consider cashing out those low-return plans and using the money to make early loan payments.
- Instead of continuing to invest in low-return plans, redirect that money towards regularly paying off your loan faster. If you’ve wrapped up certain financial chapters, like surrendering policies, use that money for prepaying your loans.
- Make Your Money Work:
- Instead of sticking with low-return investments, think about getting rid of them. Take the money from these investments and use it to pay off your loans sooner.
- Don’t just stop there – continue putting the money you were investing into these low-return plans directly into repaying your loan. If you’ve already made some financial clean-up moves, like surrendering policies, use that money wisely for early loan repayment.
4.Mark all the future inflows as prepayment money
- You might not have extra money now, but you could be expecting it in the future, like bonuses or gifts from friends and family.
- It’s a good idea to mentally tag these future funds as “for loan prepayment.” This way, when the money comes in, you’re ready to use it wisely instead of spending it elsewhere.
5.Let your next increment go to pay off the debt
You can also look at your increment for further years or at least some part of it as “for prepayment purpose”. For most people, an increment in their salaries means an upgrade in their lifestyle. The additional money is never additional in their life; it just fits in their life and finds its own equivalent expenses. However, you can be prepared to use it only and only for prepayment purpose and keep a check on your lifestyle for few years. If you don’t want to use the full increment for prepayment, you can at least use 50% of it. A balanced approach!
Invest or Pay Off Loan:
- When you get extra money, a common question is whether to pay off a loan or invest for higher returns.
- The answer depends on you. If having a loan makes you uneasy, paying it off quickly is a good idea. If you’re not into taking risks and prefer keeping money in the bank, it’s smarter to pay off the loan. It’s all about what feels right for you.
Disclaimers:
An investor education initiative By Findola Wealth Research Team.
This article is generated and published by Findola Wealth Research Team.
Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.
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