Due to the pandemic, times have become financially challenging for us. Financial experts say now is the time to save money by cutting down all unnecessary expenses and focusing on important financial commitments such as debt repayment and reducing education expenses, etc. It is important to make sure that such financial commitments are consistently met despite cash-flow issues.
However, the cost-cutting strategies applicable only on discretionary and lifestyle expenses may be insufficient to bring one’s finances back on track. Therefore, explore ways to save some large chunks of money to make an immediate and significant impact, depending on your situation. There are certain steps that you can follow to avoid the accumulation of additional debt and save some money for essential expenses.
Industry experts say housing is one of the most important expenses for a majority of us. Hence, those going on a strict financial diet need to explore ways to save something huge out of their housing expenses.
For instance, if you live in a rented house in the middle of a city, you can consider moving to a smaller place in the city outskirts to boost your savings. Additionally, with the work from home scenario, if you’re an individual currently working from your rented home, experts say such people can explore the option of moving in with their parents until the finances stabilise, if the work permits.
Move to a low-interest loan if you’re struggling with a high-interest loan. These loans include credit card debt, personal loans, etc. Experts say one can consider moving to a low-interest loan, like a securitised loan. With these kinds of loans, not only will you make your monthly repayments more affordable but also reduce your overall interest burden.
For instance, taking a secured loan such as a gold loan or a loan against your FD, vehicle or endowment plan to pay off your credit card dues, might help you clear the dues in one shot while considerably cutting your interest burden.
Additionally, instead of taking a secured loan, one could continue with paying only the minimum amount due on their credit card, however, that will only be a fraction of the total outstanding, something just to keep your card account active. By opting for an additional loan, you can not only clear your credit card dues in one shot but also use your card for essential and emergency expenses, at the same time avoiding an adverse impact on your credit score.
Having said that, if you are struggling to repay your MCLR-linked home loan EMIs, experts say one can consider moving to a repo-linked loan offered either by the borrower’s bank or a new bank. Consider this option especially if the difference in rates is considerable and/or as the borrower you are towards the beginning of your loan.
Note that a reduction in 80-100 bps (basis points) could not only bring down your EMIs but also drastically reduce the overall interest burden in the long term. However, you need to have a credit score over 750-800 to get the best rates. Nonetheless, loan refinancing involves paperwork and processing charges, and the rates of a repo-linked loan usually increase whenever the Reserve Bank of India (RBI) hikes the key policy rate in the future.