Spring time is here! Time for clearing away the clutter and dirt of the past year and start fresh beginnings! And this is just not spring cleaning of your home that we are talking about here…this is a good time as ever to take stock of your finances and spring clean all the past debts that you might have accumulated. True financial independence comes with no or minimum debts and to achieve that, once in a while spring cleaning your debt is a must! The following are some of the ways on can spring clean debts
If you have a number of consumer loans going on like home loans or car loans, check out the interest rates you are paying for them. If you see that the rates are higher than the average rates available elsewhere, think about whether it makes sense to get your loan refinanced. This will lower your regular monthly payments over the duration of your loan term. However, do keep in mind that refinancing often has its own costs including fees/charges levied for loan closure, etc. Factor in these costs while you evaluate the refinancing option.
The Loan Consolidation Option:
Loan consolidation is your second spring cleaning option where debt is concerned. Instead of paying monthly interests on various loans, see whether it suits you more to consolidate all the smaller loans into one big loan. Hence, instead of paying many EMIs on various dates of the month, you would be paying one lump sum EMI for the consolidated amount. This not only makes the activity of regular debt payment easier and much smoother but you might also get a lower interest rate or the chance to extend the loan period on this bigger consolidated loan. However, this would also mean that you would be having debt over a longer period now but loan consolidation as an option has numerous advantages and is worth considering as a spring cleaning option.
Home Equity Loans:
If you own a home and have adequate equity you might also think about offering your home as collateral and getting a home equity loan to pay off your other debts. Home Equity loan interest rates are always lower and are also tax deductible. Hence, this is often a very popular debt spring cleaning option. However, the only disadvantage here is that you have to keep in mind that you do not incur any newer lines of debt and also the fact that your home is at a certain level of risk since that’s the collateral for your loan.
The Investment vs. Debt Payment Question
The 4th debt spring cleaning option would be to use your money set aside for investment for debt repayment. This is a wise way of reducing your debt load but for this you need to evaluate which would be more profitable for you. Investment or Debt Payment? To evaluate, compare the current as well as expected rate of return on your potential investment vis-à-vis the interest that you would be paying out against your debt. If you see that you might be earning less from the
Manage your Credit Card Debt:
The fifth and a crucial debt clearance step is to chalk out a payment strategy that would eliminate the debt you have on your credit card. If you happen to have a big amount on it, the following three elements have to be inbuilt into your payment strategy:
- Make big chunks of payments whenever possible, for example using inheritance or bonus, etc
- Prioritize repayment by paying off card with higher interest rates first
- Make use of the balance transfer options
So now that you know the above 5 steps, come this spring, take a step back, analyze, prioritize and go debt free!