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Home / Money / Personal Finance /  Got a Diwali bonus? Here’s how to put it to good use

Got a Diwali bonus? Here’s how to put it to good use

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Financial experts suggest that any windfall, no matter how small or big, should be used to repay debt

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You have probably started making a list of things to splurge your Diwali bonus on. But, before you plan that extravagant holiday or buy the new iPhone, think about the many important financial tasks you can complete with this extra cash.

You have probably started making a list of things to splurge your Diwali bonus on. But, before you plan that extravagant holiday or buy the new iPhone, think about the many important financial tasks you can complete with this extra cash.

Mint lists out three ways in which you can put your Diwali bonus to good use.

Mint lists out three ways in which you can put your Diwali bonus to good use.

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Pay off costly loans

Personal loans come with high interest rates of 15-22%. The interest on credit card rollover balance is costlier at about 40% per year. Financial experts advise that any windfall, however small or big, should be used to repay debt.

“As a rule of thumb, if you are saving more interest cost by way of repayment than investing this amount elsewhere, you should certainly pay off your loan," said Raj Khosla, founder and MD, MyMoneyMantra.com.

Take note that some lenders charge a prepayment fee on loans.

“Know that the interest saving will be higher in the earlier stage of the loan. Also the rate of prepayment penalty can vary according to the loan tenure. Thus, you must contact your bank and effectively assess the total saving versus cost of prepayment," said Khosla.

Top-up emergency fund

If you had to dip into your emergency corpus amid the many hardships that the past 18 months have thrown up, a bonus is a good opportunity to refill it.

If you don’t have an emergency fund at all, financial planners advise that you use the entire bonus amount to create a cushion that can cover at least six months’ worth of your expenses.

Fund essentials to avoid new debt

You can use your bonus to buy household products such as a washing machine or a refrigerator that you absolutely need by paying upfront instead of opting for the EMI route.

Loan options like buy now, pay later and no-cost EMIs have made shopping convenient, however they charge steep interest rates of 15-25% per year.

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