Equated Monthly Instalments (EMIs) are a preferred way to make large purchases. There are a number of ways to opt for EMIs, through your bank, through your Credit Card and now you can even opt for payments by EMI without credit card in India on SBI Debit Cards. They are quite easy to avail, but if you fall back on payments, they can just as easily get out of hand. Here are a few tips on how to manage your EMIs efficiently so that you don’t end up in a pile of debt.
Do your Research
Before selecting the first EMI option that pops up, do some research. Go online and see what interest rates and offers other banks provide. Select an option that will suit your needs and something that you can afford. Some banks can provide you lower interest rates on EMIs if you contact them directly. Banks like HDFC Bank, ICICI Bank, etc, have partnered with Flipkart and Amazon to provide no-cost EMIs to customers.
Prioritise Repayment
Paying your EMIs on time can be a great boon to your Credit Score. So ensure you schedule your EMIs around your salary date so that you have sufficient funds in your account to make the repayment. If you miss EMI payments this can adversely affect your Credit Score and can also attract some stiff penalties. It is important to have a good Credit Score to avail various lines of credit in the future for things you will need.
Monthly Outlay
Ensure that your EMI does not exceed 40% of your monthly income. If the EMI is more than 40%, choose a longer tenure to reduce the EMI amount. A longer tenure will attract more interest, but having to pay anything more than 40% of your income every month towards an EMI can be quite risky. There can be unforeseen events that you will need to direct your funds toward, in such cases, it can get quite tricky if you are already paying a high EMI.
Use Windfalls to Repay
Financial windfalls like bonus, gratuity or maturity of investments can help you repay your EMIs faster. Having a debt to repay is something that can be a little disconcerting, so when you receive these financial windfalls make sure you put some aside to finish paying off your EMIs early.
Pay More and Cut Interest
EMIs with long tenures carry heavier interest than short-term EMIs. This is because even though the EMI amount is lower, for long tenures the interest you end up paying is much higher, also known as the outgoing interest. To cut your outgoing interest try to take short tenures of EMIs.
So the next time you are thinking of paying for something through EMIs make sure you take a few precautionary steps. EMIs are a great way of making large purchases while maintaining good liquidity, but if they are not managed well they can become a serious threat to your financial well-being.
