Posted 21 Aug 2019, Editor's Desk
Because of the lack of enough knowledge on how to pay off a loan early, many businessmen in India plunge into long-term debt due to lack of calculation and financial planning. And due to debts, businessmen develop various health issues like hypertension, anxiety, blood pressure, stress, and depression.
To be happy, you don’t need a piece of finance, you need financial peace.
You just need to know how to pay loan faster without disrupting your day-to-day functions.
In this article, we are discussing 8 effective ways of how to clear loans faster that will help you to get rid of life’s tension.
1. List your Debt by Interest Rate
Following significant steps will help you know how to pay loan faster than usual time span:
✅ List all your loans along with their interest rates either in ascending or descending order.
✅ Do not give equal EMI in all the loans.
✅ Complete the loan first that has the maximum interest and pay minimum EMI of other loans.
The interest rates of different loans are: Home loan - 8.3%; Car loan - 9%; Education loan - 10%; Personal loan - 12%; Unsecured loan - 20%; Credit card loan - 32%.
As the interest rates of credit card and unsecured loans are higher than the other loans, so, first complete these two loans. Keep the payment of other loans at a minimum.
2. Pay Incremental Gain Exponential
Let us know how to pay loan faster by paying more or double EMIs on the loans whose interest rate is high and get exponential gain.
Take the following example to understand how to pay off a loan early.
|Parameters||Scenario 1||Scenario 2||Scenario 3|
|Time Taken for Closure||41 Months||13 Months||6 Months|
|Payment||-||2 times||4 times|
|Benefit||Nill||3 times||7 times|
|Total Amount Paid||2,05,000||1,30,000||1,20,000|
In the above table, you can observe that if we increase the amount of EMI, then the total amount to be paid decreases. In this way, you get the exponential benefit through incremental payment.
3. Sell Unnecessary Items for at least 2 to 4 EMIs
Selling unnecessary items is another way to how to clear loans faster.
If you buy a product but not use it from last one year, then it is possible that it is your depreciating asset and useless for you.
For example, unnecessary furniture, old mobile phones, bags, books, and apparel.
You can sell the unnecessary items on OLX and Quikr. You can take out 4-5 EMIs of your loan by selling these things.
Temporary downsizing is one of the ways to how to pay off a loan early.
An intelligent person will buy an appreciating asset while a low IQ person will buy depreciating assets or liability or unnecessary objects.
5. Pay Loans with the Second Income
To know how to pay off a loan early, you need to analyze the total amount of income you have.
✅ If you have two earning members in your family, then use the income of one member to meet the family expenses and use the income of the other member to pay off your loans.
✅ If you are the only earning member in your family, then you should plan additional income through part-time jobs like freelance photography, content writing, LIC agent, catering, etc.
6. Have an Emergency Savings Fund
You should consider the following pointers to understand how to pay loan faster:
✅ Maintain some emergency savings fund so that you need not take loans.
✅ Invest in equity and liquid debt funds that will help you to takeout funds easily.
You need to adopt the following points to understand how to clear loans faster:
✅ Have a data-driven approach to your spending.
✅ Keep your intelligence above your emotions while spending.
✅ Make a budget to control your emotional spending.
Those who don’t manage their money will always work for those who do!
8. Throw any excess cash on your debt
Spend the extra money obtained from any source like tax refunds, bonuses, incentives, etc. to pay your debts.
Do not take loans in a hurry. Maintain your CIBIL score. Spend only when it is necessary.
At last, even if you know the strategy of how to pay loan faster, but you are not implementing then you are deliberately letting your loans eat all your savings and financial growth.
Hence, implementation is the key to pay your loans off swiftly.