Finance Essentials

Break up with your personal loan: Tips to pay off your debt early

14 Sep 2016 19:09

Personal loans are gaining popularity these days. Without much paperwork and need for collateral, lenders are willing to give funds to borrowers which have no restrictions on end use. But personal loans are very costly by design (about 15% rate of interest). Since there is no security or collateral, banks face higher risks for which they need to be compensated. This is the reason for high rates of interest. Though its easy to take a personal loan, if one is not careful enough, the borrower can get caught up in a debt trap. And mind you. It takes more than just a steady stream of income to save you from falling into this debt trap. It requires a change in mindset and spending habits. Lets have a look at some tips to help you break up with your personal loans:

• The very first thing to do is to reduce your expenses. Once you reduce your expenses, you can use additional surplus amounts to payoff your loan quickly.

• If your family and friends have surplus funds that they can lend to you, then you can use this zero-interest source of funds to payoff high-interest personal loans. You can then payback your family/friends without the high-interest burden.

• Another approach can be to consider monetization of financial assets. If you are really troubled with the repayment of your personal loan, you can consider selling some shares, bonds or liquidate deposits to reduce your outstanding loans.

• In fact, some lenders offer loans (at lower than personal loan rates) against these assets. This option should also be explored with the lender if you don’t want to sell your permanent financial assets to clear temporary personal loans.

• You can also consider consolidation of all your debts. In this method, you could pay a relatively lower installment every month over a longer tenure. All the components of your debt portfolio will be combined into one. But beware that this will increase the total loan cost in the long run. However, it will provide you with some short term relief. These are some tips to help you get out of the personal loan trap. Remember that defaulting on your personal loan should not be considered as an option. It will reflect negatively in your credit history and reduce future chances of getting any loans.