Earlier, loans were taken out of necessity. Even if they were to go hungry, they did not have the courage to take loans. But these days, taking loans has become very common. Also, people are getting into debt, whether there is any need or not. According to science of economy, it is dangerous to take loans indiscriminately. Let us learn how to get out of loans:
Even though there is no necessity, and there is no means of returning loans, people simply indulge in loans. Experts suggest that as far as possible, remain away from debts. Even in an emergency, taking loans should be the last resort, they cautioned.
Those who take loans are of three types. Some take loans in an emergency. Some others do so only to show off, even though there is no urgent necessity. Even well-to-people take loans. They invest the loan amounts to gain returns. The rate of interest that is paid on these loans, is very less compared to the returns that are gained. As such, they get profits, after paying up interests. The loans taken by such people are always beneficial to them. Other than these and those who take loans in an emergency situation, the rest who take loans for luxurious lifestyle, will face trouble.
How to clear loans?
The only way to be rid of burden of debt, is to clear it. Not evading it. Loans are cleared every month, in the form of Easy Monthly Installments (EMIs). If loans have to be cleared quickly, the EMIs should be increased. This way, loans will be cleared even before the due date. If you have to pay say Rs. 8,000 per month, try to keep increasing this amount every month. If you do not have extra funds, then try to limit your needs and reduce your budget. First pay the EMI, every month and then spend on other things. Supposing your monthly income is Rs. 25,000 and your expenditure is Rs. 20,000. You will be paying Rs. 5,000 towards loan. Increase this amount to Rs. 8,000. Try to adjust your expenditure in the remaining Rs. 17,000. For this, you might have to change your spending habits. Expenditure and EMIs together should not cross 75 per cent of your monthly income. Then it is easy to be free of debts.
Supposing you take two loans. Then clear the loan whose interest rate is high, first. Most importantly, if you have taken credit card loan, take a personal loan and clear it first. Because, interest rate on credit card loan is more than 30 per cent. Personal loan can be earned at 14 per cent interest rate. If you can loan some amount for a lesser interest rate from a friend, take that and clear high-interest loans first. If you have gold, sell it and clear the loan. If you cannot sell the gold, mortgage it and clear the loans. Realistically speaking, we are discussing here about clearing loans. There might be a doubt regarding another loan to clear the first one. If you are able to rid yourself of the burden of the present loan, without taking another loan, it is ok. But those who cannot cut down on expenditure, can take a loan for lesser rate of interest, to clear one that is of higher rate.
Some who are burdened by loans, still keep investing in shares, mutual funds and realities. Some take loans just to make investments. If the EMI is within the limits of the monthly income, there is no need to stop investments. But the heavily indebted, should not make investments without clearing the loans first. For ordinary people it is not possible to gain huge returns from investments made with loan amounts. That is why, those who are indebted, should decrease their investments and increase their EMIs. You can liquidate Fixed Deposits (FDIs) if any and clear the loans. LIC loans come at a very less rate of less than a rupee.
If you eat junk food, you will increase weight. Similarly, those who cannot manage money well, will get caught in debts. If you have to lose weight, you must change your eating habits. Instead of taste, you should focus on nutrition. Same way, to be free of debts, you must learn financial discipline. You must get rid of loans. If you are spending more than 45 per cent of your income on clearing loans, than the situation is bad. You are caught in debts. Experts say that if more than 25 per cent of the salary is being spent on necessities, this too is bad.
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