Loans are like Termite for your finances if not managed well.
First avoid the loan like
- Charge higher interest rate (credit card or personal loan)
- Loan on depreciating products (car, bike or mobile)
In case you are trapped in multiple loans then you should clear the loans in the following priority
Credit card (36% to 48%)
In the last email, I have mentioned that credit cards are positive loans but only if you pay the credit card bills on time.
But a credit card loan becomes the most expensive loan if you miss the payment. Banks charge the highest interest rate in range of 36% to 48%.
Don't pay the minimum due for credit cards, pay full due amount. Don't carry forward the balance.
Minimum payment option can help you avoid the late fees but you still have to pay the interest charges on the remaining due amount.
Power Advice - Don't use a credit card, if you cannot pay the bills on time.
Personal Loan (16% to 20%)
Personal loans are taken for unnecessary requirements like house renovation, foreigh travel, marriage.
Biggest mistake - People take personal to pay other loans
Due to unsecure nature, banks charge higher interest rates for the personal loan.
Credit card EMI (14% to 18%)
Auto Loan (12% to 16%)
Education Loan (10% to 12%)
Home Loan (8% to 10%)
In case your current income doesn't support paying off the loan then you should liquidate your assets in this priority.
FD, RD, or anything giving less than 8% return
MF, Stock or anything that can give negative return
Gold, property or anything that has costly process to liquidate
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