Majority of the working population in India are millennials. The term “Millennials” refers to those who were born between the early 80s and mid-90s. This is the part of the generation who are in their 30’s right now. Millennials who are less than 35 years of age have excelled in many areas in life such as education and technology. But if there is one area the millennials are constantly trying to excel in is money management, something their parents excelled at.
With the introduction of credit cards and easily available personal and consumer durable loans, millennials get into debt to get what they want without thinking twice. While there are a few who excel in personal finances and budgeting, many are falling into the debt trap every day.
Most millennials have a smartphone, a fancy car, a personal loan, and are eager to avail a home loan before they turn 30 years old. Most of them are financially broke by the first week of the month and barely survive on credit cards throughout the month. This is mainly because they are bombarded with unsecured lines of credit and lack basic information about managing personal finances. So, if you are burdened by debt and are looking for ways to get your finances back on track and start a savings portfolio, read on.
Smart ways to reduce your EMI burden
If you are reading about ways you can reduce your EMI burden, you have already taken the first step towards leading a financially disciplined life. With constant pressure to achieve few milestones such as buying a car, owning a house, getting educated, and have a lavish wedding, millennials look for ways they can avail credit and end up struggling to pay off the loans for many years. However, if you plan well in advance, write your financial goals, set targets, and stick to it, it is very easy to lead a financially stress-free life. If you have already availed multiple lines of credit, here are some ways you can reduce the burden of paying EMIs every month.
- Start making prepayments: We understand that you might not have the cash to spare every month to make extra payments towards your loan. However, use your incentives, bonus, and other earnings to make prepayments whenever possible.
- Consider refinancing your loan: If you agreed to pay a high interest rate on your loan just because you were in need of funds, do not land up paying high interest rate till the end of the tenure. Compare various loans available in the market and find the lowest interest rate available. Talk to your current lender and request a lower interest rate. If your existing lender does not agree to lower the interest rate, consider refinancing your loan. This way you will land up saving several lakhs in the long run.
- Focus on closing loans: If you have multiple loans, consider using any lump sum amount you may receive in the future to close a loan. This way, the EMI amount you pay monthly will reduce. You can use the “Snowball Method” where you pay all your EMIs on time and use any extra income you may get to pay off the loan with the lowest balance which will keep you motivated to close other loans. Or, you can use the “Debt Ladder Method” where you pay all your EMIs on time and use any extra income you earn to pay off a loan with the highest interest rate. Either way, you will be closing a loan which will reduce the total EMI you pay every month.
- Avoid using your credit card: Apart from the personal loan, consumer loan, and home loan EMIs, many pay a high amount towards their credit card payment. If you have multiple lines of credit, avoid using your credit card. Not using your credit card will help you save money which you can use to make extra payments towards your other loans.
- Do not avail another loan: Until you have achieved the ideal Debt-to-Income Ratio, avoid availing a new line of credit. A Debt-to-Income Ratio is calculated by diving your total monthly debt by your total monthly income. Ideally, your DTI Ratio should be less than 30%. If you have a high DTI Ratio, availing another loan is a bad idea. Though this step does not necessarily decrease the EMI burden, it makes sure it does not make things worse.
Other ways to reduce your EMI burden
Apart from the ones mentioned above, there are many ways you can reduce the burden of paying EMIs. If you trim other expenses, you will land up having cash and will not feel stressed out when the EMI amount is debited from your bank account. Some of the ways you can reduce your expenses are:
- Trim your entertainment and lifestyle bills. Frequently dining outside and partying too hard has got many millennials into debt. Instead of a loud party where you end of spending a lot for a few hours of fun, consider having a house party and enjoy with your friends listening to your favorite songs. Consider cooking simple meals at home which will not only help you save on your food bills but help you eat healthily.
- Check the offers available on your credit card and use them. Many credit cards offer free movie tickets every month. Plan your movie date accordingly. You can also use the fuel surcharge waiver feature and dining offers on your card to save on fuel and dining bills.
- Make sure you have a monthly budget and stick to it. It is very important to have a monthly budget. This will not only give you a clear picture of your financial situation but will also help you track your expenses. You can understand your spending habits and can trim them in the upcoming months. There are many personal finance apps that will help you draft a budget easily.
When you are planning to make some healthy financial changes, make sure you set small and realistic goals. Appreciate yourself when you do good and learn from the setbacks. Leading a financially disciplined life is not possible overnight. So, sit back and learn from the process.