Home loans, car loans, personal loans, all help us enjoy a lifestyle NOW without waiting to accumulate savings and then buying the items. This is a practical solution for many individuals and most manage to pay off their debts in the designated time period thus not affecting their credit rating. In fact a healthy amount of loan and timely repayment actually reflects positively on your Credit Information Report and Credit Score.
Problem occurs, when a person has accumulated more debt than he or she can handle. This happen due to careless financial planning like accumulated debt on credit cards through months of paying only minimum amounts, taking loan to repay another loan etc. At one point it becomes important for the borrower to get out of the debt cycle and fast. To pay off debt faster and never again get in a situation of debt cycle, a person can take the following steps :
- Pay the debt with highest interest rate first. While it is common to mistake the largest sum to be your biggest debt, it is important to note, that more than the principal amount the interest rate is the culprit. Because interest rate defines how fast and how much your debt will grow. Thus when a person has multiple debts to payoff, he or she should make a list of debts in decreasing order of interest rates and payoff the highest interest rate debt first.
- Convert payments to EMIs. Instead of accumulating a huge amount on credit card bill and then managing to pay it partially, it is better to convert the amount to EMI. Most credit card companies today provide this facility to convert purchases into EMIs for nominal processing fees.
- Plan purchases wisely according to credit card bill cycle. If you time your purchases well, you can enjoy almost 45 – 50 days of interest free period on credit card. But for this you need to know your bill cycle well and time your high value purchase at the beginning of bill cycle thus giving you enough time to save sufficiently for paying the bill on time.
- Avail automatic billing facility. Many credit cards can charge you a high late payment fees and per day interest for late payments. You may end up creating payable interest for simply forgetting to pay the bill on time. If you are well aware of your spending and know that you would have sufficient balance on payment due date, it is a good idea to avail the automatic bill payment facility every month to pay your credit card bills.
- Check your bills every month. Sometimes credit card companies smartly include miscellaneous charges on your bill that you as a consumer have right to decline unless agreed to. Instead of just checking the total amount and paying it every month, it is a good idea to check the bills in details for such discrepancies.
- Do check early payment penalties. Many loan companies charge a certain penalty fees for early loan closures. So if you are planning to save more and finish off that loan as fast as possible, do check such clauses before taking the loan. Because you may end up paying more in penalty than you would have paid as interest normally.
Defaulting on debts can damage your credit score so use these tips and pay it off faster!