Most successful rich people👩🏻💼 on this planet became rich by taking on loans/debt to fund their business ideas.
Indian society views debt as a huge headache because we hear ample stories of relatives getting financially ruined when they are unable to repay.
Most of us will go through at least 3-4 loans in our lifetime such as education loan, vehicle loan, home loan, personal loan, gold loan etc. 💴
For middle class Indian, it becomes almost impossible to not take a loan to achieve our life goals.
The ability to handle debt is a true life skill. Something which has not been taught to us. 😓
One of the methods to smartly handle debt is called ⚡️Debt Avalanche Method⚡️
You first arrange your loans in decreasing order of interest rates.
For example:
🔹Credit card loan: 36% interest rate. EMI 12,000 per month
🔹Personal loan: 16% interest rate. EMI 22,000 per month
🔹Vehicle loan: 9% interest rate. EMI 35,000 per month
🔹Home loan: 7% interest rate. EMI 53,000 per month
You now pay the minimum EMIs for all 4 loans religiously. 💸
Any extra amount that you have, you pay towards the first loan i.e. credit card loan since that has the highest interest rate. That way you are optimising your overall interest rate.
Once the credit card loan is done you use the freed-up credit card EMI (INR 12,000 per month) plus the excess money to pre-pay the personal loan.
Once the personal loan is done you use the freed-up credit card EMI (INR 12,000 per month) and freed-up personal loan EMI (INR 22,000 per month) plus an excess amount to pre-pay the vehicle loan.
You get the idea.✨
I personally wouldn't pre-pay a home loan since the tax-adjusted interest rates are super low (4-5%) to even worry about.
I would rather put the excess money in stock market. (Personal view, pls do your own research)
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