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IndianMoney Review: How To Manage Debt?

IndianMoney.com Research Team | Updated On Monday, December 10,2018, 05:50 PM

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IndianMoney Review: How To Manage Debt?

 

 

Availing too many loans and credit cards leads to the debt trap. Many young people in India are struggling with debt. People cannot repay loans with high interest rates. Increasing debt leads to stress and unhappiness. Managing debt is crucial to avoid falling into the debt trap.

What is debt? Another word for debt is borrowing. You borrow from banks and financial institutions and have to make principal and interest repayments in time. Default on debt leads to a bad credit score. Learn how to manage debt to avoid falling into the debt trap.

Want to know more on Home Loans? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

SEE ALSO:Credit Score India

IndianMoney Review: How To Manage Debt?

IndianMoney reviews say debt management is important to avoid debt trap.

1. How to manage debt?

  • Take a look at credit card and loan statement:

Pull out and study credit card and loan statements to see how much you owe creditors. IndianMoney reviews advice paying off expensive loans first. Check free credit score to understand debt position. If you have repaid loans but not closed loan account, do so immediately to improve credit score.

  • Get rid of expensive loans:

Personal loans and credit cards are unsecured loans with high interest. Credit cards charge 24-36% interest a year. An IndianMoney review says pay off expensive loans first for efficient debt management.

Never overburden yourself with debt. Choose and clear debts which can be repaid quickly. Keep long-term loans like home loans and education loans aside, unless you get a sufficient large sum (windfall like bonus or inheritance) to make a pre-payment. Understand tax benefits vs pre-payment in home loans and education loans. You get a tax deduction of Rs 1.5 Lakhs a year under Section 80C on home loan principal repayments.

There’s Rs 2 Lakh a year tax deduction on home loan interest repayments. First-time home buyers get an additional Rs 50,000 a year on home loan interest repayments, subject to certain conditions. You get tax deduction under Section 80E on education loan interest repayments.

See Also: Taxation of Debt Funds

  • Avoid further credit:

Make sure there are no loans, close to retirement. Availing more loans shows credit hungry behavior affecting credit score. Convert all emergency purchases to EMIs to make easy repayments. If you need money urgently, liquidate fixed deposits or other investments. Most FDs give around 6-7% interest rate, but loans and credit cards charge much higher rates. Liquidate investments to repay loans.

SEE ALSO: NPS Contribution

2. Debt Management Tips:

  • If you have multiple loans and don’t know which ones to service, get rid of expensive loans quickly. Pay off expensive personal loans and credit cards.
  • Credit card Companies offer the option of minimum balance on credit card. IndianMoney reviews say once you get into the habit of paying minimum balance on credit card, interest free period comes to an end. You end up paying 24-36% interest on outstanding credit card balance.
  • Use surplus money to repay loans. If you get a bonus, hike or a windfall like an inheritance, IndianMoney reviews say pre-pay loans after doing a cost-benefit analysis vis-à-vis tax deductions.
  • Prepaying home loans reduces interest. For a 20-year home loan, just 18-20% of home loan EMIs goes towards principal repayments. Most of the repayments go towards interest payments.
  • Don’t save/invest and accumulate debt. Loans charge much higher rates than interest earned on most investments. It’s pointless investing in an FD at 6-7%, when personal loan charges 20% interest a year.
  • IndianMoney reviews advice creating an emergency fund for financial emergencies. It’s better than availing a personal loan at high interest rates.
  • There are times in life when you land up in financial difficulties. There’s nothing wrong in adjusting lifestyle to manage debt. If you are in heavy debt, cut down on basic luxuries.

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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