SMART TIPS TO HANDLE YOUR DIFFERENT DEBTS
1. Your first credit card
· This will probably be your first experience in handling debt.
· It's also the most expensive, so be careful about paying the bills regularly, and on time.
· 24-30% is the annual interest you pay for rolling over credit card dues.
· Opt for a card with low credit limit in the beginning, since your bill payment record will be the foundation for your credit score.
· Set a limit for the sum you can afford to pay in a month and stick to it.
· If you are unable to pay the credit card bill for two months, stop using the card immediately.
2. Education loan
· The high fees of most professional courses from renowned institutes are tough to pay.
· Fortunately, education loans can come to the rescue.
· However, evaluate whether your future salary will be able to compensate for the big loan.
· Public-sector banks offer the cheapest interest rates, while others give the fattest loans.
· 11-14% is the interest rate charged on education loans.
· Try to service at least the interest component of the loan during the grace period.
3. Your next credit card
· If you are a smart user, a credit card can actually be a source of free money in the form of reward points and cash-back schemes.
· Choose your next card depending on your spending pattern and payment potential.
· But don't go beyond your means just to grab rewards.
4. Personal loans
· These include travel loans, consumer durable loans and other monthly payment schemes.
· Such loans cater to your temptations, not needs, so don't opt for one willy-nilly.
· Though monthly payment schemes claim zero interest, they charge a high processing fee.
5. Car loan
· A car is a depreciating asset, which means its value will fall each year.
· However, its fuel and maintenance costs will rise annually.
· So, factor these in, along with your monthly payment, before you take a car loan.
· To avoid a high interest, pay at least 50% of the car's price from your own pocket.
6. Home loan
· A house is probably the biggest investment you'll make in your lifetime.
· For this, you may also need to take a sizeable loan.
· As with other loans, make sure you can afford to pay the monthly instalments for this.
· The thumb rule is that your total debt should not be more than 40% of your take-home pay.
· The longer the tenure of the loan, the greater the interest you will have to pay over the years.
· So, opt for a shorter term, even if you have to curtail your lifestyle to pay a higher instalment.
7. Second car loan
· Whatever the reason for buying the second car, the first-car loan rules apply here too.
· While haggling with the dealer, try to swap the freebies for a higher discount.
· Also, some car companies offer their own finance schemes, which promise lower interest rates.
8. Second home loan
· Its rental income could make for a significant addition to your retirement kitty.
· If you have a good credit record, negotiate with the lender for a lower interest rate.
· As with other loans, make sure you can afford to pay the monthly instalments for this.
· The thumb rule remains that your total debt should not be more than 40% of your take-home pay.
· Here, too, opt for a shorter term to curtail interest outgo, even if you have to save elsewhere.