Are you stressed out about your debt? You’re not alone in this! This post will guide you the information that you need to smartly handle your loans, credit cards, and EMIs.
Debt management is the planned and skilled way to manage your debts, which includes things like making a budget, planning how to pay back the debts, and evaluating the ways to lower your debt. It is very important for keeping your finances in your control and manageable reach because it helps you stay in charge of your money and avoid getting stuck in a circle of debt.
By taking action to properly handle your debt, you can improve your credit score, lower your stress levels, and confidently move towards your financial goals.
Understanding Different Types of Debt
When a financial institution like Bank gives money to a borrower through a loan, and the borrower agrees to pay back the loan amount plus interest over a certain amount of time, it is called “debt”. Here we will see different kinds of loans which are offered to a person:
Personal Loans: It is one of the easiest loans that one can get in India through Financial Institutions. It is lended to a borrower for a variety of reasons, such as medical problems, wedding costs, travel, and other personal reasons. Because there is no security, the interest rates on these loans are usually higher. It is disbursed on minimal documents like salary proof.
Loans for buying or building a home are called “home loans”. They are typically secured loans as your house or land is used as collateral for the loan, which lets people borrow more money at a lower interest rate which is around 8-10% in India.. Additionally, you also get tax benefits on payments on home loans.
Education Loans: These loans are meant to cover the costs of your higher education. These loans have flexible payback terms and low interest rates as they are backed by the Government. EMI starts when you start earning. Banks give grace and pause periods to start payback the loan. .
Business Loans: It is usually given to business owners like Manufacturers, Traders, Service oriented industry. There are many Government schemes which back these loans and disbursed with the aim to promote the industries in India. In this very big amount of loans are disbursed.
When picking a loan, you should think about a few things
Interest Rates: Look at the interest rates that different banks are offering and choose the one that is the most competitive to get the best deal.
Terms of Repayment: Calculate the loan period for which you have to pay back the loan and pick a loan that suits you the best. Longer terms for paying back the loan may mean lower EMIs but higher interest rates total.
Processing Fees: Banks may charge processing fees that add to the total cost of the loan. It is a minimal fee. You can decide which bank offers the lower processing fees.
Insurance: There is now bank policy to offer you insurance on your loan. You can check the insurance amount that you will have to pay every year besides your EMI. It is offered by banks to secure their loan payback if something happens to you during the loan period.
Foreclosure charges: You need to check foreclosure charges or conditions related to it. Foreclosure means you want to close your loan account before the loan period is decided between you and your bank. Some banks charge huge amounts and penalty on the foreclosure of your loan account. So, go through the terms and conditions wisely before borrowing a loan.
Credit Cards
Credit cards are the option that banks give out to their customers that let them buy things on credit, up to a maximum amount that the bank has already agreed to. It’s like a loan in a plastic card and you use it first and pay later. Cardholders must pay back the used credit amount within a certain amount of time, or they will have to pay interest on the debt.
Interest amounts on delayed payment are usually 2-3% per month. So, learn Some important things about credit cards before purchase:
Minimum Payments: Credit card companies usually ask their customers to make minimum payments each month towards their billed amount. It can look lucrative but it can disturb your financial plannings if the full billed amount is not paid on time or before the due date. Not making a full billed amount within the due date can lend you with high-interest debt which will keep building over time.
Using a credit card has a number of perks, such as
Convenience: Credit cards make it easy and safe to pay for things both online and off, so you don’t have to take cash with you. It helps you manage your finances effectively and through monthly statements you can check your spending and plan accordingly.
Rewards and Benefits: A lot of credit cards come with rewards programs, cashback deals, discounts, and other perks that make buying things easier and encourage people to use their cards.
Read: Methods to pay credit card payment on time.
Conclusion
Loans, credit cards, and EMIs are all important parts of the Indian banking system because they give people access to credit and financial freedom. But It’s also important to understand their limitations and benefits which can help you in building your financial strategies.
Understand properly the different kinds of loans out there, offered to you and why you need a loan, and for what purpose you need credit cards for making smart financial decisions and managing your debt responsibly.
