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NEW DELHI : Personal finance is an essential aspect of one's life and how one plans it impacts all other associated factors. Many individuals plan to purchase goods on equated monthly instalments (EMIs) during the festival season or to take personal loans for various needs such as marriages and education.

Experts suggest that the effective management of EMIs is integral to financial independence in the long run. So, if you manage to repay your EMIs wisely, you might end up saving money.

"The top-secret behind saving money while repaying mortgages and loans lies in the effective management of EMIs. The key to the strategic management of EMIs is understanding what to prioritize first," said Pranjal Kamra, chief executive officer (CEO), Finology, a financial advisory firm. "As per Avalanche strategy, besides your monthly loan repayments, you can additionally try to repay slightly more on loans that carry higher interest rates—for instance, credit cards, personal loans, etc. However, the big-ticket loans having tax benefits such as home loans can be repaid as per the schedule. Hence, this process can help you save some interest costs and, you may become debt-free faster."

Consolidation of several loans into a single one can help better EMI management and also help you save money on EMIs. Likewise, you can opt for restructuring of the loan based on your repayment capacity or transfer the balance to other banks that charge lower rates.

Besides, one should avoid delayed payments or missed payments as they lead to additional financial burden because the bank or the lending institution will charge late fees, penal interest, etc. This will again increase payment burdens. Anil Pinapala, CEO and founder, Vivifi India Finance, said, "You can consider prepaying loans, mortgages in part or full when you have access to extra monies. But before you opt for this, it is essential to make sure that there is no prepayment forfeits, or you can negotiate for a waiver, lower penalties for prepayment."

Repay loans strategically

There are two main strategies to save money while paying back your loans, says Abhishek Soni, CEO and co-founder, Upwards.

According to him, the first strategy is to pay off your highest interest rate loans. These loans will allow you to save the maximum interest amount and progressively reduce your debt burden. The caveat here is that the highest interest rate loans will be smaller amounts/smaller tenure, which will consequently not help you save a bigger amount.

The second strategy is to pay off your largest loans. While some of your larger loans may come at a lower rate, the monetary outflow on interest cost will still be on the higher side. This is because of the larger amount and longer tenure of such loans. Hence, it will be beneficial for you to pay off such loans first.

The choice between the above two strategies can often be hybrid and based on your personal free money flows that you can pay off towards your EMIs. Hence, you should calculate the total interest cost outflow per loan and then plan to pay off the highest interest cost loans first, which aligns with your free cash flows, said Soni.

So if you are preparing to avail of a loan soon, deploy these strategies to make repayment hassle-free and stress-free.

Points to consider

Living life completely on debt can be troubling, both financially and emotionally. Experts say the first thumb rule is not to let your loans fund the luxuries you don't need or can't afford, even if banks charge lower interest rates.

Second, timely repayment is the key to having a healthy credit score. This process will also allow you to build financial stability substantially.

Third, repaying EMIs or loans on time helps keep interest rates low to any future loans requirement.

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