Financially difficult occasions force us to reduce corners. The concept is to save as a great deal as you can so that your most essential economic commitments such as rent, debt repayment, groceries, education costs, and so forth., are regularly met in spite of money-flow troubles. However, price-cutting approaches such as curtailing discretionary and life-style costs, albeit vital, may possibly be insufficient to bring your finances back on track.
You may possibly also need to have to discover methods to save dollars in large chunks to make an instant and substantial effect if your scenario demands so. These measures may also assist you keep away from accumulation of more debt or the liquidation of necessary assets in order to remain afloat.
Change your rented residence
Housing is a single of the most essential costs for a majority of us. If you are needed to go on a strict economic diet regime, you can discover methods to save a large chunk out of your housing costs. If you live in a large rented residence in the middle of a city, you can think about moving to a smaller sized residence in the exact same locality or a large residence on the city outskirts to enhance your savings. If carrying out so makes it possible for you to save, say, Rs 10,000 in a month, your total annual savings just from this workout could be Rs 1.2 lakh. Also, if you are a young person presently working from your rented residence, you can discover the choice of moving in with your parents till your finances stabilise.
Move to a low-interest loan
If you are struggling with a higher-interest loan such as individual loan or credit card debt, you can think about moving to a low-interest loan, like a securitised loan, to not just make your month-to-month repayments more reasonably priced but also lower your all round interest burden and assist you turn into debt-totally free more rapidly. Let’s assume your credit card dues have snowballed to Rs 1 lakh at 36% p.a. providing you sleepless nights. Now, paying only the minimum quantity due, which will be a fraction of the total outstanding, could preserve your card account active. But the total dues may fill up your credit limit to a substantial extent, leaving the card just about unusable for your day-to-day costs.
In such a situation, taking a secured loan such as a gold loan or a loan against your FD, car or endowment strategy may assist you clear the dues in a single shot although significantly cutting your interest burden. For instance, a gold loan of Rs 1 lakh at 8% p.a. for 5 years would come with an EMI of just Rs 2,027 with a a single-time processing charge of Rs 5000. Later, when your finances stabilise, you can think about pre-closing your gold loan immediately after paying the pre-closing charges. With this, you can clear your credit card dues in a single shot and get to use your card for necessary and emergency costs although avoiding an adverse effect on your credit score.
Similarly, if you are struggling to repay your MCLR-linked residence loan EMIs, you can think about moving to a repo-linked loan provided either by your bank or a new bank, specifically if the distinction in prices is considerable and you are towards the starting of your loan. For instance, a reduction in one hundred basis points could not just bring down your EMIs but also drastically lower your all round interest burden by lakhs in the extended-term. Do note, you need to have to have a credit score more than 750-800 to bag the greatest prices, loan refinancing would involve paperwork and processing charges, and the prices of a repo-linked loan would raise anytime RBI hikes the crucial policy price in the future.
(The writer is CEO, BankBazaar.com)