Personal Finance Archives

5 Goals to Help Your Finances in 2020

Every 1st of January, when the clock strikes 12 at midnight, what is the first thing you think about? Most would say wishing everyone a happy new year. Of course! But what’s the second or third thought? Planning how you want to lead the new year and set goals. While some might be fairly ambitious, some can be realistic too!

Everyone has to take stock of their actions, decisions and plans made in the previous year to understand what worked and what needs to be changed. These could range right from personal goals like planning an international trip to professional goals such as receiving a promotion by year-end. But the plan that all these goals derive is how strong a financial plan you built in the last year.

Financial plans are dynamic and they need to adapt to the new situations and requirements that you shall lay. Here are a few goals you can place across 2020 which is not only a new year but also a new decade!

Goal #1: Catch up with your credit history

Your credit history will tell you how high above or deep into the water you are. It enlists all your financial transactions and also exhibits the factors that raised or reduced your credit score in the last year. In addition to that, check your personal details and KYC information in case there has been a change in the previous year. Wrong information can also hamper your credit score and we don’t want that to be the case!

Goal #2: Take stock of last year’s credit lines, transactions etc.

While you are looking at your credit report, evaluate the lines of credit you picked up and how you did in repaying them. The mix of credit lines you pick is an important factor accounting for your credit score. So make sure you branch out with the kind of loans you pick to ensure that you have used the right type of loans when needed. If there were any defaults or late payments, they would’ve affected your credit score. So, make a promise to stay at the top of your repayment game in 2020.

Goal #3: Pay all your bills on time and lay a plan to reduce your credit debt

If you have faulty credit card due clearances or late loan EMI payments, list the reasons behind them both, real and hypothetical. Evaluate how you should avoid the real reasons from recurring and be prepared to deal with the hypothetical ones in advance. Every faulty payment reflects on your credit report for 7 years, so make sure you don’t get late in paying your credit card dues and loan EMIs this year.

Also, start planning on how to reduce the number of credit lines you pick in a year. The last thing you want is to display a credit hungry behaviour! So, make a list and take stock of those credit lines which you could’ve avoided. Try to abide by this in 2020!

Goal #4: Apply for credit only when absolutely needed & stick to a monthly spending limit

You may have received a credit card with handsome credit limits but that doesn’t mean that you can use all of it, especially when you cannot afford to repay the entire due on time. Keep a few points in mind when you get a new credit card! Plan your savings and put a cap on your monthly expenses. This will help you plan ahead and save up for any emergency expenses. Avoid picking up credit to repay another line of credit, pick it up only when absolutely necessary.

Goal #5: Save up on emergency funds

Emergency funds are underrated. It may seem like an extra amount getting blocked from your monthly income amidst all the dues and EMIs, but having an emergency fund is very important for everyone. Right from health needs to emergency travels, you should be prepared for everything in advance. So, invest in an emergency fund and build it judiciously.

These 5 goals will help you ace your finances in 2020, so make sure you keep a stellar credit history and take measures to maintain it every year.

Want to lay down such goals? Begin by checking your CRIF Credit Score now.

Should I Opt for Festive Season Loans?

Isn’t festive season the best time to cash on impulse? Consumers are already spending heavily either shopping, taking a holiday or planning a lifestyle upgrade. That’s why discounted loan advertisements become pretty hard to avoid! Before you opt for the festive schemes, offers and loan discounts, just keep your credit score and this quick read to in mind!

What’s in it for me?
Festive loans give you special waivers in the processing fees or lower interest rates for the loan tenure. Banks tie-up with several merchant segments like travel, lifestyle, automobile, real-estate, etc. to get you quick disbursement on loans for travel & holiday packages, home appliances, fashion, electronics, and accessories! Banks are thrilled to offer personal loans or credit cards within a day since they are unsecured, i.e. do not require collateral, which makes them easy to offer!

How does it work?
Loans are for a genuine requirement and a liability that needs to be paid back. The festive offers do make a lucrative bet, but make sure you read the underlying terms and conditions before riding on the debt wagon.

Need to Know!
Recently, RBI has clarified that the term “Zero interest” or “No-cost EMI” does not exist as banks or lenders only earn from the interest rates. So, they either charge you a lump sum when you are availing the loan, or give you a higher monthly EMI, perhaps charge you a higher processing fee. You will find kiosks outside banks offering ‘quick loans’, requesting you to fill up the application forms.

When you apply for a loan, the lender has the authority to pull out your credit report to check your loan eligibility. This is called a ‘hard inquiry’ and can knock off a few points of your score. If you do have to borrow this festival, make sure you don’t apply for several festive loans at once, anticipating which one will go through!

Good to Know!
Millennials today survive on debt, quite literally! Either with an ongoing car loan or a home loan, or at least a credit card. Paying in EMI’s instead of a chunk out of your corpus seems easier to sustain your lifestyle needs, but it’s important to know that you only own things when you pay them off completely. In the festive mood, loan discounts may seem like a savior in need, especially with living costs going through the roof. Ensure you do thorough research on the lender options and the type of loans you can apply for before you make a hurried application.

What should I do?
It is not uncommon to make big purchases during the festive season but it is essential that you know how much you need.

Analyze
Analyze your personal financial goals and the benefits it actually gives you instead of making low prices the sole reason to apply for it. Do you really need a car upgrade? Is a foreign journey on your to-do list? Have you been waiting to buy a home? Having a credit mix of loans, credit cards and other credit lines can boost your credit score and thus your creditworthiness but only if you make timely repayments on them. Hence, planning your finances for the credit repayment tenure is the first step towards managing debt well.

Prepare
Take a quick informative tour online and prepare the documents you require for the loan application like income statements, tax receipts, and identity proofs. Check how much income you are left with after you pay your credit card dues, household expenses and taxes to estimate loan EMIs beforehand, making it easier to pay off without hurting your monthly budget!

Check
Once you are ready with your research on lenders and loan types, give your credit score a quick check to confirm loan eligibility that’ll help you avail it effortlessly. A credit score is an important tool that lets lenders study your credit history through an automated report that determines your creditworthiness. If you are worried about a low score, here are ways to repair it before you apply.

You can check your free credit report with CRIF and prepare to make the festive season memorable by fulfilling your wishes!

5 Practical Steps to Get You Out of Debt

You are aware how debt limits your opportunities and disturbs your financial life. Also, if you are asking yourself “does debt hurt my credit score?” then yes, it brings it down too. Your debt could be a result of various actions. It could be that you had not anticipated certain medical emergencies, educational expenses or any other unavoidable expense or it could be a result of your relentless spending. Whatever the reason, you have now realized that you want to get out of the debt zone. Here are some practical tips that could get you out of debt:

Create A Plan and Stick to It

Get a piece of paper or open a Google Spreadsheet on your computer. Write down all the amount you owe and plan to clear out all the debt in the next 6 months or any other realistic duration. Chalking out a good plan and religiously following it gives you the determination to come out of your debt. A good debt payment plan involves identifying the areas where you spend your money regularly. You can start by maintaining a spending journal. Many times, we neglect the seemingly minor expenses which mount up to become a decent amount.

At the end of the month, you can manage your money by identifying and eliminating unnecessary expenses. You can try to cut off on some expenses which you can live without such as your YouTube premium or Netflix membership, eating out, clothes, etc. These expenses, although small, may accumulate to become a great saving once you start noting them.

Lower Your Debt to Income Ratio

Your debt-to-income ratio is all your monthly debt payments divided by your total monthly income. This is one of the ways how lenders measure your ability to manage the payments you make every month to repay the money you have borrowed. For example, if you pay a house loan EMI of Rs. 35,000/-; Your Car EMI of Rs. 10,000; and another Rs. 2000 for the rest of your debts with a monthly income of Rs. 90,000/-, then your debt to income ratio will be ((35000+10000+2000)/90000) *100 = 53%. This indicates an unhealthy debt to income ratio.

The ideal debt to income ratio should be 30% or less. Don’t worry if you are not there yet for it is understandable that conditions will not always be perfect. But you can always try to slowly and steadily push yourself below the 30% mark by avoiding further unnecessary debt. While you are at it, keep a track of the developments in your credit score. You can check your free credit score on CRIF High Mark.

Focus On Clearing One Debt at A Time

There are two approaches to go about clearing off your debt, one at a time. The first way, known as the debt snowball, is to make a list and pay off your debts amounting in the ascending order, i.e. from smallest to largest, regardless of the interest rate. The point is to tackle the smallest account at a time and eventually snowballing into larger ones. While this method might accelerate your debt clearance and may give you the confidence to tackle the larger debts as you go down the list, it is not a mathematically sensible method as we aren’t considering the interest rates here. This is where comes the more logical technique called the debt avalanche or laddering.

In laddering, you arrange your debts in the descending order of their interest rates. The one with the highest interest rate becomes your priority. Here you make the minimum payment for every account except the one that you are trying to get rid of first. For this debt, you try to pay the maximum possible amount to clear it off as early as possible. Once that debt is paid completely, move on to the card with the second highest rate and so on. By doing so, you clear off the debt with the highest interest rate and will save the most money. Remember to NOT close the account once the balance is paid off as that will damage your credit. Just let the account sit at zero balance.

Stop (Ab)Using Your Credit Card

One of the easiest ways you can come out of debt is by avoiding going further into debt. One of the factors which keeps you clinging to debt is the use of your credit card. Using a credit card rampantly only serves to add more debt on you. So stop using your credit card, at least for a while, until you get yourself out of debt. This would also add discipline to your life when you stop spending on everything your card can buy. Moreover, your credit score would also benefit hugely as this would bring down your credit utilization ratio.

Sell Your Unused Items

Just a look around your house and you will find that there are a lot of unused items which you are better off without. It could be the pile of newspapers and books, your old printer or DVD player, or even an extra motorcycle, depends on what you need the least right now. In this way, you can also earn some extra cash!

If you follow the above steps diligently, coming out of debt will transform from a distant dream to a cake walk!

Credit Utilization Ratio: How it Works & How to Improve It?

The Credit utilization ratio is one of the key ingredients in determining your credit score, so it’s crucial to understand how it works. After all, a good credit score can qualify you for higher loan amounts and lower interest rates, while a low credit score can make it difficult to reach your financial aspirations. In this blog, we’ll try to cover everything you need to know about credit utilization, including:

• What is the credit utilization ratio?
• How is the credit utilization ratio calculated?
• What is a good credit utilization ratio?
• How to improve the credit utilization ratio

Let’s Begin With What is Credit Utilization Ratio?

Your credit utilization rate, sometimes called your credit utilization ratio, is the ratio of your credit card outstanding to your credit limit. They can impact up to 20-30% of a credit score, depending on the scoring model being used. If you never use your credit cards and there’s no balance on them, your credit utilization would be zero. If you typically carry a balance on one or more cards, you are ‘utilizing’ some of your available credit—lenders and credit bureaus will take note. While a one-off higher utilization rate for your credit cards may not really impact your credit score, your credit score will certainly be impacted adversely if the credit utilization rate continues to be higher on a regular basis.

How is the Credit Utilization Ratio Calculated?

Credit utilization ratios can be calculated for each credit card (card balance divided by card limit) and on an overall basis (total balance on all cards divided by the sum of credit limits). For instance:

	Balance	Limit	Credit Utilization Ratio
Card 1	₹0	₹5,000	0%
Card 2	₹8,000	₹10,000	80%
Card 3	₹1,000	₹7,000	14%

Total Credit Card Balance / Total Available Credit = Credit Utilization Ratio

Total credit utilization ratio in this case will be 40%.

What is a Good Credit Utilization Ratio?

The general rule of thumb with credit utilization is to stay between 30-40 percent. This applies to each individual card and your total credit utilization ratio. Anything higher than the above-mentioned percent can cause a dip in your credit score as lender relate this to a credit hungry behaviour. This doesn’t mean that one cannot ever cross 40% of the credit utilization on any card. The impact on credit score is more only if high utilization seems to be a common pattern over last 6-12 months.

Finally, improve your credit utilization rates and eventually your credit score through these smart moves:

1. Paying credit cards on a more frequent basis – While you may be using your credit cards for availing the card benefits on different transactions, try to reduce your credit card outstanding by more than minimum each month and paying more frequently. For example, even while the credit card statement is generated on a monthly basis, you may keep paying your credit card outstanding every 10 days. As such, your credit limit will keep getting replenished and thus, your credit utilization rates will be visible as low.

2. Availing a Higher Credit Limit – Just in case you believe that you can effectively toggle between credit card dues and your regular payments, you can ask for a higher credit limit from your bank. Given the current credit card usage remains to be the same, the credit utilization rate will automatically reduce as the usable limit has increased. However, in such times, you should be careful that having a higher credit limit may also tempt you to spend more.

3. Using Multiple Credit Cards for Managing the Limits effectively – In case you are holding multiple credit cards, try to use different cards for different transactions instead of using a primary credit card for all the transactions. Accordingly, you will have a lower credit utilization rate across all the credit cards, instead of having a very high utilization rate for one card and very low/ nil utilization for the other cards.

4. Leave cards open after paying them off- By paying off the card, you’re reducing your total balance. By keeping the card open, you’re maintaining your total credit limit—thereby lowering your credit utilization ratio.

You should keep monitoring your credit score on a regular basis and strive to maintain a good credit score with the help of better credit habits. To check your score from CRIF, click here

What Is a No Cost EMI and Does It Work In Your Benefit?

With e-commerce websites running fantastic discounts 24x7x365, shopping has ceased to remain a ‘festive activity’ and has instead been replaced by a year-long affair. Buying behavior has inclined towards becoming more impulsive than ever with the continuous bombardment of notifications tempting customers to buy at the best discounted price. Although on the surface it seems like you have saved a goodly amount with a lucrative deal, in reality, you end up buying stuff which was not even required in the first place.

One such scheme that has gained popularity in the recent past, especially in the white goods sector, is the no-cost EMI or zero cost EMI scheme. It is not uncommon to hear someone happily buying a mobile phone or a television or an electronic appliance which they initially thought impossible, using the zero cost EMI offer. But is this really a great deal or a smart trick? Let’s find out!

What is a No Cost EMI?

What is the first thing that strikes your mind when you hear the phrase, No Cost EMI? No interest payments involved. Isn’t it? You feel it’s a no interest loan. But it’s not. No Cost EMI is a loan involving interest payments. On availing No Cost EMIs, your bank enjoys a discount in the form of interest. The Reserve Bank of India (RBI) in its circular in 2013, has said that the concept of zero percent interest is not valid. This means the banks are clearly not entitled to provide loans at a zero percent interest. Then how are the retailers running this offer?

How Does This No Cost EMI Scheme Work?

There are two ways in which these schemes operate. One of the common ways is to forego the discount and instead pay this amount to the bank or financial institution to cover the interest cost. Another one is by adding the interest amount to the price of the product. Let’s look at these schemes in a bit detail:

a) When discounts equal interest: The most common way through which retailers offer ‘No-cost EMI’ is by offering discounts equivalent to the total amount of interest to be paid. Suppose you want to buy a phone that costs Rs 30,000/-. Under the 3-month EMI plan, at an interest rate of 15%, you would have to pay an interest amount of Rs 4,500. But in Zero Cost EMI, you are exempted of discount and you pay the original price of the Smartphone in EMIs. What does this mean? But if you make an upfront payment, the Smartphone would cost just Rs 25,500. You get it at a discounted price of Rs 25,500. If you opt for the No Cost EMI, you end up paying Rs 30,000. You don’t get the Rs 4,500 discount which goes to pay interest on the loan. The total price you pay on the Smartphone is split into money paid to a retailer and interest paid to a financier.

b) When the interest amount is added to the product price: Another way in which such schemes work is by adding the interest amount to the price of the product. Let us say the product costs Rs 15,000. The retailer lures you to buy this product under the ‘No-cost EMI’ plan for Rs 17, 250. Here the interest of Rs 2,250 is already added to the cost of your product and will be paid by you in installments. Therefore, if you have taken a three-month EMI plan, then the amount payable by you will be Rs 5,750 per month. Sometimes the Rs 2,250 may be covered as the processing fees.

Should you opt for No Cost EMI? You can opt for No Cost EMI if:

• You want to buy an expensive or popular product which now is beyond your budget.
• You don’t want to spend in one go or do not have enough cash to make an upfront payment.
• You are getting a good deal by availing an additional discount.
• You want to start building your credit history and credit score by availing a short quick consumer durable loan.

When you opt for a loan on No Cost EMI option you should also be careful about the down payment and processing fees, if any. Read the fine print and terms and conditions carefully. The retailers don’t offer this scheme on every product that they sell. Also, if you do not have a credit card of the relevant bank that offers the scheme, you can’t get the No Cost EMI deal if it is attached to the credit card. The credit limit on your card gets blocked too for the entire transaction value even though you are liable to pay just the EMIs. There are other financiers who give such offers to consumers with no credit cards or even with no credit scores. Such financiers have people in store to support you with the processing of loan within 5-10 minutes. The offer may sound lucrative but if not used carefully it can affect your financial budgets and ultimately your credit scores!

Be Wise, Be Happy!

What To Do When Interest Rate Goes Up?

As interest rates continue to rise, especially in the past few quarters, opting for a loan has become more and more difficult. According to financial services industry trends, the interest rate is only expected to rise further. In such times, the borrower needs to tighten their wallets and find out ways to reduce the impact. There are ways in which you can save a significant amount of money if only you be a little bit more vigil, well informed and proactive.

What Can You Do For Home Loans?

There could be tough times ahead for home buyers since that is usually the largest loan one has. Many banks today are charging from 8.5% to 10% which is a far cry from a few years back when interest rates were as low as 6%. With such rates, your monthly EMIs won’t be affected but your total payable interest will certainly go up and the tenure of your loan. Following are just some of the key ways in which you can tackle this situation and save more than a few bucks!

1. Increase your EMI instead of tenure
Most of the lenders will extend the loan tenure instead of increasing the EMI itself. A smart borrower should increase the EMI and look out for a tenure deduction to save from paying more than what they had planned for.
For instance, let us take a look at the example below to have a more clear understanding

As you can see, when there is a hike in interest rate and the tenure increases, you end up paying ₹84,978/- more than your actual payable. However, if you only increase the EMI amount by a meagre ₹120/- you must pay only ₹21,294, which is much lesser than the amount you had to pay in case your tenure was increased. This is just an example and you can save depending on your requirement.

2. Pay off a goodly chunk
If you are able to, pay off the loan as much as possible to reduce your tenure. In this way, you will be saving a lot of excess money which would’ve been spent and will also relieve the mental burden. In the above example, you can pre-pay Rs 15000 and keep the EMI and tenure same, neutralizing the impact of interest rate hike. You may know that pre-payment on home loans do not elicit any charges.

3. Review how your interest rate is pegged
Over the years, RBI has issued guidelines to banks and housing finance companies to keep changing the pegging for home loan interest rates. You would have heard terms like PLR, Bank Rate and MCLR. MCLR is the latest reference for lending rate by banks, and it allows better benefits for consumers. Do ensure your home loan interest rate is now pegged to MCLR and not to Bank rate, if you have taken loan from a bank.

4. Switch your lender
As a final option you can also consider switching your lender. While changing lender could result in saving on total payable interest, you should also take into consideration other expenses such as processing charges and documentation fees. If you are saving more in Interest after the payment of a few thousands as processing fees, then that would be a good deal. However, if you are closer to the completion of your loan, it would not make much sense to peep into other schemes. While you’re at it, make sure that your credit score is not hampered or affected due to multiple inquiries.

Tips to Avoid splurging On Your Diwali Bonus Today For A Better Tomorrow

Besides lighting diyas, exchanging gifts with your family and friends and making a handful of joyous moments, Diwali also brings cheer in the form of bonuses from work. You often make a never-ending shopping list as you have that hefty Diwali bonus to bolster your spending intentions. While it’s okay to splurge a little from it, this money should be wisely used to help you reach your long-term financial objectives. We often forget that the habit of saving and investing smartly lead to wealth creation rather than indulging in extravagance. For those who lack a clear plan on what to do with the bonus money, here are some tips that will help you spend wisely and make the most of your Diwali Bonus:

Prepare a Diwali Shopping List

Diwali is a festival where people tend to overspend or do most of their major shopping because at this time of the year all the exorbitantly priced things are sold at discounted rates. However, before you spend your hard-earned money mindlessly, consider preparing a Diwali shopping list. Every item, that you’re likely to buy for Diwali should be included in your list. Once the list is ready, scrape out the things that you can skip buying and make do with your existing things. Identify the items that you really require in that month and eliminate the ones that seem unimportant. A well-prepared shopping list will help you save money from the bonus and prevent you from being an impulsive shopper.

Pay Off High-interest Debt

Double-digit interest on a loan can be harsh on your financial stability, especially if you have been trying to clear it for a long time. You should use your bonus at this time to repay any high-interest debts before shopping for frills. Financial experts say that an individual’s priority must be to do away with the debt that has an interest rate more significant than what you could earn on that money elsewhere. Paying off debt can ensure peace of mind and help you clear your finances for other expenses.

Create an Emergency Fund

It’s a good idea to have an emergency fund that can meet 3-6 months of living expenses. This can ensure a stress-free lifestyle if you were to face an unexpected and costly medical issue, or unable to work for any reason. An emergency fund offers much-needed liquidity in the event of an unanticipated expense. With an emergency fund at hand, you may not have to apply for a high-interest loan to handle a crisis.

Keep an Eye for Festive Loan Offers

On Diwali, people welcome wealth and prosperity into their homes. Therefore, buying gold and other expensive items such as a new house or a car during this festive season is considered to be auspicious. If you’re planning to buy a car or a house, this is the great season to do so as a lot of banks offer great deals on various types of loans such as car loans and home loans. Invest your bonus money in a planned way to get the most out of it.

Avoid Hasty Decisions That Harm Your Credit Score

Mindless decisions that affect your credit score and reports should be avoided instead you should always take decisions that will improve your credit score further. Random purchases or loans that are difficult to repay later would refrain you from achieving stability in your finances. Make sure you plan and chalk out the ‘can’ and ‘cannot’ to stay informed and aware.

Keep a Check on Your Credit Purchases

When you purchase on credit it is essential to constantly calculate and set all due dates as a reminder. It is essential to keep your credit card purchases under control as exceeding limits could affect your credit score and credit report directly. Also, to maintain a healthy credit score one must repay the credit card dues on time because any delay would hamper it.

Diwali bonus and the festive discounts will make every deal look very alluring but refrain yourself from buying unnecessary things and pre-plan your expenses during the festivities. Be a smart consumer and get the maximum benefits from the dealers.