How to Manage the Burden of Several Loan Repayments
In today’s world, everyone wants to live a fabulous life. This means buying the latest gadgets, stylish clothes, and fancy cars. It also means going on foreign holidays. Now, you can choose how to spend your money. Lenders are ready to give you credit for your expenses. But there is a disadvantage to all this. People often have many debts. These include Home Loan repayment and credit card repayment. Having too many debts can become a big burden.
How Can Several Debt Repayments Hurt us?
Every loan or debt repayment has its own terms and conditions. For example, credit cards have the highest interest rates. They can be as high as 42% per year. Say, you miss your repayment date. Then you also have to pay late fees and other high charges. Are you paying off a car loan? The average interest rate is 12%. The loan repayment period could be five years. Your Home Loan may be for the longest period of time. The average interest rate could be 10% to 11%. This depends on your lender. The period could be anything from 15 to 30 years.
Having so many loan EMIs due can be overwhelming. You might miss an EMI on these loans. Then you would have to pay late charges. This often happens with credit card repayments. And then your debt increases. Also, your credit rating with CIBIL and other agencies suffer.
What Can You Do?
Transfer Your Loans for a Better Interest Rate
You can transfer your loans to another lender with a better interest rate. This will reduce your EMI. It will also reduce your total debt burden. Now, interest rates are being cut. It may be the perfect time to transfer Home Loans and other loans in your name. Then you can get the benefits of revised interest rates. You can also talk to your existing lender. You can ask them to reduce their current interest rates. And they may offer you better terms and conditions as well. Banks and NBFCs usually do not want to lose their customers. So, they are open to a deal. This way they can hold on to their customers.
You can take a single loan to pay off all your other loans and debts. This can help you with several debt repayments. Debt consolidation is regarded as one of the best ways to manage loans and finances.
Sukanya Sarkar is a working member of her family. She earns Rs 80,000 per month. She takes care of her elderly parents who are dependent on her. Sukanya has several loans, though. She also has a credit card debt in her name. Here is a look at her current financial situation:
Sukanya has a Home Loan of Rs 35 lakh. The tenure is 20 years. She has 17 years left to pay off the loan. The rate of interest is 10.5%. The EMI is Rs 34,943.
She also has a car loan of Rs 5 lakh. The time period is five years. The rate of interest is 12.5%. The EMI is Rs 11,249.
She has a credit card outstanding of Rs 1 lakh. The rate of interest is 42%. The EMI is Rs 5,000.
Sukanya spends Rs 51,192 every month on debt repayment. This comes from her salary. So, she has only Rs 28,808 left for other expenses.
What Options Sukanya has?
Sukanya can transfer her Home Loan to another bank. Suppose this bank has a lower interest rate of 9.5%. Then her EMI comes down to Rs 32,625. This amount is derived using a balance transfer calculator.
Sukanya should choose the Home Loan top-up procedure. Then she can add a top-up loan of Rs 7 lakh to her existing Home Loan. This option is better for her than taking a personal loan. A personal loan will have high interest rates. But Sukanya can use her top-up loan. Then she can pay off her credit card and car loan debts.
Sukanya’s top-up loan has an interest rate of 10%. This is for the remaining 17 years. The EMI on the top-up loan is Rs 6,755 only. Sukanya’s debt burden will come down to Rs 39,380. She will have Rs 40,620 for other expenses.
There is one disadvantage, though. Earlier Sukanya had a Home Loan for 20 years. Now she will have a Home Loan for 27 years.
How will you manage your Home Loan repayment and other debts? One way is to transfer Home Loan and other loans to lenders with better rates. Debt consolidation is the next step. This way you can manage your several loans and finances better.