Getting a loan is easy compared to repaying it. If you are one of those people with debt on your account, you would wonder about the right way to repay your loan and enjoy a debt-free life. However, repaying the debt isn’t easy, and that’s one reason most people fail to do it correctly and end up making multiple mistakes in the entire repayment process. Don’t worry: below, we share a few tips and educate you on common mistakes when paying off debts.
Not Preparing Emergency Fund: Financial experts highly recommend creating an emergency fund that will help you combat the emergency anytime in the future. Unfortunately, most people skip creating the emergency fund and hence end up financial crisis. There comes a situation when you require money before pay day in your account, and that’s where short-term loans come in use.
Alongside paying your EMI, it’s better to allocate a small portion to the emergency fund to keep yourself safe from future monetary crises.
Repaying Higher than EMI: We understand that you are excited to repay the loan quickly. This doesn’t mean you put your entire savings into repaying the debt. This is never a good practice as it will result in zero cash-in-hand. The future is uncertain; hence, you might face financial issues soon after repaying a higher loan amount. Ultimately, you might ask for another short-term loan.
So, it’s better to fix the EMI amount. Yet, if you have enough funds to pay higher than the EMI, keeping your emergency fund aside and paying the leftover amount to the lender is better.
Eliminate the Future Causes of Taking a Loan: You are already familiar with the reason that resulted in taking a short-term loan. This gives you a lesson on staying prepared for the future and saving surplus to ensure you don’t need such loans. Saving for the future is the only way to avoid emergency monetary needs, which you can do today.
Last-minute saving isn’t a practical process; hence you must know the predictable reasons when you might require high funds and start saving for them.
Incorrect Budgeting: Budgeting is the secret of successful money management, and that’s the only reason many fail to save for their future. Paying off debts has now become a need that you can’t skip. Hence, creating an effective budget that includes your ongoing EMI and necessary expenses is essential.
Preparing a realistic monthly budget is equivalent to half victory. Creating your budget and following it will end up repaying the loan quickly.
Doing it Alone: If you are running a loan, you must inform your family members about the same. You might get into a situation that restricts you from paying the debts, and hence you end up getting a high penalty. Informing your family members will always keep you on the safer side.
In case of failure to pay the loan, you can ask your family members for help; till your financial journey comes back on track.