Effective ways to repay your loan without straining your pocket
Securing a loan is an effective way of financing projects. People get loans for different purposes, but the key reason is to lighten the burden of financial constraints. However, despite the loan purpose, a core principle in every loan agreement terms is to repay it in the specified time. Living in debt can be stressful and expensive. Although the process of paying a loan can be painful, it contributes a lot to your future financial stability. Below are various strategies to repay your loan without stressing yourself.
Increase your payments with an increase in income
One of the easiest ways to repay your loan quickly is to increase the Equated Monthly Instalment (EMI) when you get an increase in your income. For instance, if, you get a 10% rise in your monthly income, you should increase the EMI by at least 5%. You should not underestimate any payment increment ratio since it has a significant impact on the total loan interest deduction.
Pay loan with high interest rates first
Identify all the outstanding loans and determine the ones with high interests and clear them first. Going forward, this strategy helps you to reduce the burden of interest. After repaying the most costly loan, you can move to the next in the list. However, paying high-cost loans should not be at the expense of other loans. You should also pay regular EMIs on other loans as you emphasize on the one with high interests.
Use existing investments to repay debt
If you have a deteriorating loan status, you can leverage your current investments to improve it. For example, you can borrow against your life insurance policy to pay off a loan.
Refinance your loan
You can refinance a loan by negotiating a new monthly payment and a pay off date. However, this strategy should be used if it gives you a lower monthly payment rate and a sooner pay-off date. If the negotiating does not result to these two factors, there is no need to refinance because you do not want to lower the monthly repayment while lengthening your loan term. This will result in paying the same principal with increased interest.
Utilize windfall profits
These are unexpected income gains which could come from unforeseen income, income tax refunds, winning a lottery or a shortage in supply. If you get these gains, you should utilize them in repaying expensive loans. Financial institutions like Lend Genius consider people with good credit status when giving big loans. One way to keep a good financial record is to pay-off your loan using windfall gains.
Change of lifestyle
Loan repayment requires discipline and commitment. Your lifestyle can be a big barrier in keeping a good repayment record. A shift in expenditure ensures you have the necessary amount to repay EMIs. Therefore, you will need to cut down on luxury and unnecessary expenditure. If need be, you can request your credit company to lower your spending limit so that you will have more money left to repay your loan.