financial planning

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About Debt Management

Its been long since I was planning to start my own blog about Financial Management. Finally today is the day I am writing my first piece about Debt Management.

In todays life people are tend to have a life style which propel them to spend beyond their means. Which create a Debt traps for people and because to this people suffer from Hyper tension, Anxiety, Blood Pressure, Stress, Depression. 30% of Indian population of the country are getting 30 % extra illness because to Debt trap.

So, I thought to write on something relevant to Debt Management.

I hope from this blog people will learn to eliminate Debt and will plan their Finances and control their spending.

There is fundamental difference between keeping accounts and Financial Planning.

Due to lack of financial planning and calculation people are trapped under Debt.

Financial Planning is most necessary for every business and individual.

Recently banks write off bad Debt for Rs 8 lakh Crore, just 12 accounts responsible for 25% of Rs 8 lakh Crore with banks.

To become happy you don't need piece of Finance you need Financial peace,

Here are the 8 ways to get rid of Loans.

1 List your Debt by Interest rate.

Arrange your Debt in ascending or Descending order as per the interest rate.

Loans can be of Personal Loan, Car Loan, Home Loan, Unsecured Loan, Education Loan.

loan which has highest interest rate need to be closed first on priority. Don't divide your EMI equally for all loans. Keep other loans on lowest EMI for which interest rate are low, and increase your EMI for which interest is highest.

Following are the chart which shows the interest rate for different loans.

Interest Rates in %
Loan	Interest
Home Loan	8.5%
Car Loan	10%
Education Loan	11%
Personal Loan	12%
Unsecured Loan	20%
Credit Card	32%

As you can see credit cards carries the highest interest rate and one should avoid excess use of credit card which prompt you to spend beyond your means at present and pay in future which creates bad trap for all.

2. Pay Incremental Gain Exponential. 

It is amazing thing which is known by very few, Pay Incremental Gain Exponential.

The most expensive loan is to be repaid by increasing EMI to the highest possible level and just maintain others by minimum pay and the gain from this is would be exponential.

Below is the chart showing 3 scenario of loan repayment.

             

Scenario Tabel
Parameters	Scenario 1	Scenario 2	Scenario 3
EMI	5000	10000	20000
Time Taken For Closure	41 Months	13 Months	6 Months
Payment	-	2 Times	4 Times
Benefit	Nil	3 Times Benefit	7 Times Benefit
Total Amount Paid	205000	130000	120000

It is imminent from the above chart in scenario -I If a person pays EMI of Rs.5000/- per month time taken for the loan closer is 41 months and total paid amount is Rs.205000/

In scenario -II where EMI is double Rs.10000/-  the time taken is reduced from 41 months to just 13 months and benefit is 3 times by just doubling the EMI. and total payment paid is Rs.130000/-.

Net saving of Rs75000/- on interest.

In Scenario -III where EMI is Rs.20000/- time taken for loan closer reduced to 6 months and Total payment amount reduced to Rs,120000/- only and benefit is 7 times from what one has to pay in scenario -I.

One has to repay incremental EMIs as much as possible to get the benefit of reduced time and payment of interest.

3. Sell Unnecessary Items For Atleast 2 to 4 EMIs.

As warren Buffett has rightly said.

"If You Buy Things That You don't Need 

You will Have To Sell The things That You Need"

Just observe minutely at your home office you will find many things which are lying ideally and occupying unnecessary space at your house and office. These all are useless depreciating assets like unnecessary furniture old mobiles, these may be electronics appliances like old TV Own, Heaters old leather Bags, laptops washing machines camera bicycles, books, musical instruments apparels.

Nowadays it is easy to sell all these things on OLX/QUICKER and you may pay all the amount received equalling to  3-4 EMIs of  your costliest loans.

4.Temporary Downsizing 

Wise man will always buy things which are appreciating in nature and the person who is not wise will always buy things which are depreciating or creating liabilities.

One can evaluate following things.

1. Gratification Expanses

2.Dineout Expanses

3.Entertainment Expanses

4.Unnecessary Monthly Subscription Services

5.Depreciating Assets

6. Non Value Adding Objects

These all things can be controlled at times to increase your savings upto 30%.

Which will helpful to get rid of your EMIs quickly and before the tenure.

5. Pay Loans with Second Income 

Some time in families both husband and wife are earning members in that scenario one income shall contribute for routine expenses and savings others income to be utilized for paying EMIs.

and in other scenario where only one earning member is there he can always plan for one additional income which sounds awkward and difficult but it is not like that there are many things an individual can do to generate additional income like one can do freelance photography, content writing, teaching, can be part of many other multi level marketing, data entry, tele-calling, Industry specific consulting as hobby some people do catering using social media for different promotional platform tweeting etc. Just one has to find out his passion along with his profession one can generate additional income for him/herself.

6.Have an Emergency Savings Fund

How about some savings which can avoid taking loans an additional EMIs???

Every month keep some amount in saving bank which is available after routine expanses and by doing this for quite some time one can have a corpus of 5-6 months of his monthly income which can be invested in liquid/debts fund which generates 6-9% return and liquidity is also very easy in such funds. Money can be liquidate immediately within 24hrs and can be used in emergency.

7.Habit of Budgeting is an extra blessing

Have a data driven approach to your spending's.

Keep Your Intelligence Above Your Emotions.

If you make budget it will certainly help you to control your emotional spending

Budgeting is very simple one has to observe his/her last few months spending and prepare an excel sheet and allocate amounts for different heads.   

Those who don't manage their money will always work for those who do. 

Budget will help you out in data driven spending's and control your emotional spending's. 

Habits of Budgeting is an Extra Blessing
Category	Budgeted Amount	Spent Amount	Remaining Amount
Electric Bills	-	-	-
Groceries	-	-	-
Investment	-	-	-
Rent	-	-	-
Water Bill	-	-	-
Mortgage	-	-	-
Food	-	-	-
Credit Card	-	-	-
Loan	-	-	-
Utility Cable	-	-	-
Entertainment	-	-	-

8. Throw Excess Cash on your Debt

Any extra amount received through Tax Refund, Car Sale, Property inheritance, Bonus, Incentives Variables. Any wind fall gain received should not be wasted in buying unnecessary

things or travel instead shall be used in debt pay off.

In an all never be in hurry in taking loans keep your Cibil Score good.

As Chankiya righty said always keep oneself away from Loan Enemy and illness.

It is important to have loan free society and country just by simply applying these 8 points one can be free from loans and believe me all the things are very simple to implement.

Do share your views and comment for this article and you may write or call us for any advice and do recommend us to write on topics of your choice.

Regard

Ansh Fincare

Wealth creation redefine.