3 Simple Hacks To Become Debt- Free(Part 2 of 3)
Payoff debt sooner using simple tweaks in your daily life
As promised, here I am with the second hack to help you pay off debt sooner. If you haven’t read the first hack I shared, feel free to check it out.
My parents are my role models when it comes to debt payment. They weren’t the kind of people who strictly followed the EMI rules.
They missed EMIs. Was it a problem for the banks. Absolutely not.
But why?
They made extra payments towards the loan regularly. Hence, even if they didn’t make a couple of installments, they managed to pay off the debts long before the actual loan period.
PS: My parents were not rich. Neither were they finance professionals. But, with sheer will and determination, built their house without taking a home loan. The only thing that made it possible was financial prudence and a boring lifestyle through which they saved every penny.
When I started paying off my education loan, I made sure to use my first bonus to partially pay off the debt. When I look back, it was the best decision.
I had to take a career break post my son’s birth. Due to some pre-payments already made, I never had to worry about my EMI payments. When I returned to work, I started making the EMIs as per schedule. And you know what? Despite missing EMIs, I am still ahead of schedule to pay off my loan.
But, I know I got lucky with the bonuses from my employer.
What I did some 6 years ago is not possible now. There is no job security and getting a bonus is uncertain. On top of it, the rising living expenses. There is no way one can think of paying off the debt before the actual loan period.
I beg to differ.
Let me share a hack which can help you relieve the debt burden sooner and not take it to your grave. Trust me, with some planning, anybody can do it.
Hack #2: Increase your EMI by 5% every year. Repay the loan sooner and save on the interest cost.
Let us take the same example we used in our previous story (Hack 1 of 3).
Imagine you have a home loan of $300,000 at a 7.2% fixed interest rate for 20 years. Your monthly EMI would come to $2362. Imagine you took the loan in June 2018 and EMI kicks in from July 2018. If you follow the schedule from the bank, your loan will be fully repaid in 20 years, i.e by June 2038
Now, imagine you are going to increase the EMI by 5% at the beginning of every year, starting from July 2019 (the second year of repayment).
- During the second year, from July 2019 and till June 2020, you pay $2480 (2362+ 5% of $2362) instead of $2362 .
- During the third year, from July 2020 and till June 2021, you add another 5% to the EMI. ie, 10% of actual EMI or (2362+ 10% of $2362).
Let me show it to you in the below table.
Note: In the above table, EMI is the one stipulated by the bank. You can follow the table for all your debt repayments. If your EMI for a particular loan is say $1500, in 2nd year start paying $1575 ($1500*1.05) and so on and so forth.
- If you follow this simple trick, the loan of $300,000 will be now repaid by July 2031, i.e within 13 years.
- Additionally, you will save $84,464 in interest.
What are you waiting for? Implement this simple hack to repay your debts faster.
Planning is the first step in your journey towards financial freedom.
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I will be sharing the remaining hack in the coming stories. Follow and subscribe so that you don’t miss them.
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