How to plan your finances to repay loans on time

If you have taken a loan, you should manage your finances well to repay the debt on time to avoid getting debt-trapped and maintain your creditworthiness.

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The most useful ability you may have is the ability to manage your funds well.

As loans and buying things on credit create obligations to repay the debt from future earnings, a person should avoid these unless the purposes are to acquire capital assets to reduce expenses or to enhance the earning capacities.

“The most useful ability you may have is the ability to manage your funds well. It is a skill that should be instilled in a person from the beginning. Staying debt-free is an ultimate liberation – the financial nirvana you’ve always dreamed about. However, there may be times when you need to take out a credit card or a personal loan. Obtaining credit is not difficult, however some people have difficulty repaying the loan on time,” said Rohit Garg, CEO and Co-founder, SmartCoin.

If you have to take a loan in case of an emergency or buy things on credit, you should manage your finances well to repay the debt on time to avoid getting debt-trapped and maintain your creditworthiness.

According to Garg, here are some finance principles or practices for effective money management which one should follow diligently.

Develop a Contingency Plan

Life is uncertain and establishing a contingency fund to deal with any unexpected events or emergencies is always a prudent decision. All you have to do is set aside some money from your paycheck. It can be held in any liquid asset that functions similarly to a fixed deposit. This will ensure that you continue to receive some money while the cash is ready to be used.

Stick to your monthly budget

Just because you make a lot of money doesn’t mean you go out of your way to spend all of it. If there’s something you don’t need, it’s pointless to get it. Creating a monthly budget and sticking to it is necessary and judicious. It is best to prevent impulsive purchases. Credit cards are, without a doubt, a costly debt alternative with drawbacks. If you have a last-minute modest expense, it’s a good idea to take out an immediate loan with a low interest rate. It is essential that you shop around because there are so many lenders offering a variety of loans.

Maintain a favourable credit rating Score

After six months of salary, your credit history is automatically available for examination, and CIBIL assigns you a Credit Score. This credit score, which ranges from 300 to 900, is a numerical representation of your credit history. A credit score of 750 or higher is considered desirable, and most loan applications with this score receive faster approval. While acquiring a loan is simple, repaying it on time is more difficult. If you want to retain a solid credit score you must pay your EMI dues on time.

“Taking care of one’s finances is a big job. However, if you stick to the aforementioned financial strategies, you will be able to weather any storm that comes your way,” said Garg.

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