Debt is that kind of money that nobody wants with them, however, at some point of life, you may face a need where it becomes inevitable for you to take a loan, be it a Personal Loan, a Home Loan, or other form of credit. After the requirement is complete, the first thing that comes to your mind is should I save money or the debt should be cleared first? Life is all about balance, you have to keep stability on the first priority – be it financially, physically or emotionally.
The answer is however very clear as we all know that debt is taken against a guarantee or a set amount of interest is payable for it. The longer time you will take to repay the loan, the higher amount of interest you will have to pay. But this situation gets really complex when a big expense is above your head and debt needs to be repaid as well; the decision taking in such a situation is a tough task. Given below are certain points that you might find helpful to cope up with such a situation.
To save or to pay off debt
The final decision obviously is determined on the basis of your income. You have to earn more if you want to pay more; a source of regular income is sought before the approval of the loan just because of these factors. If you are unable to pay the debt, better not take it and manage with the resources you have, howsoever limited they might be.
Finance related issues are challenging and coming to a conclusion affects your life in a dozen ways. The situations are different for every individual and thus it is not a one-size fits all strategy that can come to your rescue. You need to explore the possibilities and all the available options to pay off the debt as soon as you can.
Since the amount of interest would be higher as long as the principal sum is high, people end up paying more amount than the principal sum as interest since they do not make arrangements to pay off the debt.
Try to keep the instalments of considerable size so as to reduce the amount of interest charged. As the principal amount gets reduced after every payment, the load on you too gets smaller and smaller. Be it a Personal Loan or a Home Loan, this applies to all.
A debt is a debt; you have to pay it back at some point in time. It is just for the sake of making the money available at the time you needed. Remember it is not your money but a credit and even if you need to suffer a bit, the debt needs to be paid. Failing which, your credit score goes down and you are no longer eligible to get a loan again with such an ease when you Apply for a Personal Loan Online or for any other credit.
Paying off the debt first is the best decision than saving the money for any future requirement, though; it completely depends upon your circumstances. Calculate your financial requirements and goals – choose what is best for you and embark upon the course.
Benefits of paying off your debt first
Nobody wishes to have the stress of debt over their head. But sometimes you have to take a loan to fulfill your desires or the necessities. There are several people with distinguished mindsets – people who do not want a single penny as debt, they may suffer and suffer but would not take a loan; the people who buy the latest phone or designer wear, a luxury watch and even a fancy vehicle by taking a loan; and the people who either to study or start their business need a loan. The requirements are different and so the decision.
If you are a taxpayer with regular income, you may keep paying a fixed amount for years, which would not only help save tax for you, but also make you a good credit scorer. But if your major earning is in cash, you better pay off the debt first. Some reasons why it is better to clear the debt are mentioned below:
1. To minimise or to eliminate paying interest
Most of the credit cardholders usually pay off their debt on a monthly basis. It has a charge of up to 20% as interest. If it is not paid regularly, you will end up with paying most of your hard-earned money to the bank as interest charges instead of returning the principal amount.
2. To get peace of mind
People who are under debt have a thing common – stress. The very thought of paying thousands of rupees as interest and not being able to return the principal makes their stomach burn. So if you want relief from this stress, pay off your debts as quickly as possible to ease out your worries.
However, there are certain cases where you get benefits of saving money first instead of paying it back soon.
1. If the rate of returns on your savings account is substantially high
If the amount received as interest from the bank you have an account in is high enough to ensure that the loan payment would be facilitated by putting the money in savings account, you can think of depositing the money rather than paying off the loan first.
2. To help in an odd situation
Emergency doesn’t come with a warning. You better be prepared for an adverse situation, for which there would not be time to get a loan.
So think wisely and choose the best for yourself. If paying off the debt is inviting another personal loan, there is no point hurrying towards clearing it. But once the stress of debt is over, you can save afterwards.
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