How to become ‘Loan Free’ Early and Save Lakhs of Rupees on Interest Costs!
Financial products such as home loans, car loans, personal loans, and credit cards give you the purchasing power to lead a comfortable life. The ability to repay in easy EMIs has instilled pro-credit sentiment among the consumers. Did you know that 77% of working professionals prefer personal loans to fund various expenses? Although these financial products are essential, it is imperative to not get into a debt trap. Do you want to learn how to save money on interest costs? Here’s how you can do that.
- Overdraft facility against mutual funds
Have you invested in mutual funds? If yes, then here’s some good news for you. You are eligible to opt for an overdraft facility against your mutual fund. However, if you avail of this facility, you cannot sell your units until you repay the amount taken against the mutual fund. You can opt for 50% of the equity funds and 70%-80% of the debt funds to avail of the overdraft facility.
So, for instance, let’s say you have invested INR 5,00,000 in debt funds and INR 50,000 in equity funds. You want to use the overdraft facility to pay off your car loan of INR 3,75,000 which has an interest rate of 10% which comes to INR 37,500. Under the overdraft facility you can opt for 50% of equity funds which will come to INR 25,000 (50,000*50%) and 70% of debt funds (5,00,000*70%) i.e., 3,50,000. So, you can avail yourself a total of 3,75,000 in overdraft to pay off your car loan and save INR 37,500 that you pay as interest against your car loan. That’s smart, isn’t it?
What you have to do next is use your cash in bank or cash in hand to deposit into this overdraft account. This will reduce the interest that you accrue in this account. Let’s understand this with an example. Let’s say you have 2,00,000 in your bank. You can transfer it to an overdraft facility account. So, now your balance will be 3,75,000-2,00,000 i.e., 1,75,000. So, the interest that you will now have to pay is 8% on INR 1,75,000 i.e., 14,000. This brings down the overall interest.
- Tax refund
When you receive a tax refund, you can plan to pay off your debt instead of using it to meet day-to-day expenses. The tax refund is a big chunk of money that has the capacity to bring your debt down considerably. Imagine the amount of debt you can reduce by paying it off year on year with your tax refund.
- Focus on income
If you are salaried, you can work an extra job that will earn you some extra bucks. At the same time ensure you don’t indulge in frugal spending and stay true to your budget. Please remember, the money that you don’t spend is the money you save which can be used to pay off your debts.
So, we hope this helps you be debt-free. For more information, all you have to do is connect with us.
