Go debt free!

If you get tangled in a debt trap, what should you do? The most obvious advice you will receive is to cut down on your expenses and save up to pay off your debt. You need some quick steps in order to stay pumped enough to get out of debt completely. When you start knocking off the easier debts, you will start to see results and you will start to win in debt reduction.
                           

Forecast debt plan

The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first.

Low interest rate

One can low the credit card interest rates by doing a balance transfer. This refers to move your credit card to another bank that might lower the interest rate to get your business. Shop around and try to get the lowest interest rate for the longest duration.

First repay your expensive debt

You should look over the interest rates of every credit card you use to make purchases and sort them from highest to lowest. By paying off the balance with the highest interest first, you increase your payment on the credit card with the highest annual percentage rate while continuing to make the minimum payment on the rest of your credit cards.

Allocate your investments

You may need to do a little reshuffling. Ideally, begin by liquidating any investments, other than insurance products, that are paying you a low tax adjusted rate of return. Then pay off your higher cost debt before lower cost ones. To put it simply, the credit card bills and personal loans must be the first to go. At the same time, you would need to insure that you continue making payments of EMIs on asset loans, used to purchase a home or an automobile, etc.

Negotiate with creditors

Try to explain creditors that you got trapped in bad financial duress and about the hardship the business is going through. Then, ask if they have a plan that may provide better payment terms. If the creditor doesn’t offer one, request a payment plan or a reduced settlement amount.

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Source: Secondary

Beware First-time home buyers!

Buying your dream home is a massive investment of one’s lifetime and requires tremendous research about the property, the builder, the policies etc. Taking a home loan is a long term commitment; it becomes crucial that the buyer doesn’t get carried away by lucrative deals and offers. You may end up paying more or getting inefficient service if you choose the wrong scheme or lender for your home loan. There are many mistakes committed by first-time home loan borrowers, which can prove to be destructive for their finances.

Here are the top 5 mistakes committed while taking a home loan:

Avoid selecting your lender first

Most people prefer to go to banks calculate their eligibility as per to know whether their finances will be adequate or not for a loan. Mostly, they are deceived, since the lenders may offer some thriving deals to make money. It’s beneficial to check your eligibility factor online and know easily how much approximate amount of loan you are eligible for.

Borrowing beyond means

Obtaining money more than their income source allows is another misstep which most people make. Banks grant the loan on the basis of your eligibility, income and liabilities, but they don’t scrutinize your existing expenses. However, if your current expenses are immense, despite of that, if you take a loan which results in high EMI payment, you may end up in a bad debt trap. It is always better to lower your budget if your current income and expenses levels are not favourable.

Opting a false loan scheme

In the current economy times, banks are initiating different overwhelming schemes for home loans. Remember, there are some loan schemes in which the rate of interest remains fixed for the initial years and thereafter the loan becomes a floating one, which is linked to the bank’s base rate or prime lending rate. People choosing such schemes should be careful to understand if they have the scope to keep the EMI or tenure changes that will be unveiled when the floating rates kick in, which can be considerably higher! A lack of understanding over a loan scheme or a lack of repaying capacity when higher interest rate kicks in can only result in difficulty in servicing the loan!

Ignoring to review cost

It is always advisable to bargain regarding the interest rates, EMIs, etc. Since, apart from your income and payment structure potential, your negotiation skills will also be considered. And as a prudent loaner, get all the information about the processing fees, legal charges and other hidden costs before deciding on the loan amount.

Neglecting insurance for your home loan

Most borrowers do not recognize this risk, in case, any demise happens to you unfortunately during the tenure of the loan. The home loan that you have taken should not be a burden on your family. By insuring your home loan with a life insurance and a critical illness policy you can benefit your family members with a home and not a home loan. In case of the death of the borrower, the life insurance cover can provide the family with a monetary cover. And for the critical illness policy, if in case the borrower is not able to earn due to any critical illness, this policy will provide financial assistance wherein the interest amounts can be paid.

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Source-secondary

Paying home loan has beome easier! See how?

Buying a home is not merely a financial decision. It is an emotional decision too. Are you planning to shed the weight sooner rather than later of home loan? It may be prudent to do so as you become free of EMIs most important benefit of closing your home loan early is obvious – you become free of EMIs and heavy loan debt. It requires discipline and planning, but it brings you much closer to the proud day on which your bank hands you the ownership papers of your fully paid-up house. Have a look on the simple steps to prepay your loan easily and save money for the future ahead.

Just pay more

Start playing with mortgage calculators and see how adding a little payment to your principal here and there can shorten the length of your loan. If you pay a little more principal, you get a bonus. The lower your principal gets, the more every payment from then on is applied to principal, as less goes to cover interest expense. When you pay extra, make sure the extra is applied to the principal balance, not just set aside for the next payment. And before you make extra payments, read your contract and make sure you won’t have to pay prepayment penalties.

Consider your financial plan

With the financial safety net in place, it is time to build the corpus that you will need to close your home loan early. You should begin by taking a close look at all the ways in which you lose money each month. Evaluate the investments and the returns produce on them. Once you are assure that your investments are sufficient to take of financial security ahead. So, you can transfer the surplus to pay off your home loan debt.

Switch to partial payments

Many banks permit their customers to make partial payments of home loan in a year. If you are salaried, you can divert your salary hikes, yearly bonuses or incentives towards your repayments. Businessmen can similarly use any extra profits towards paying off the loan. Check if your bank will set up a biweekly payment plan. Some banks do it free; others charge. Ask the bank to credit extra payments toward principal so you save more on interest expense. Some banks set aside extra payments until the end of the year.

Cut down on unnecessary expenses

Want to pay off your home loan financial debt earlier as to lessen the financial burden every month. Try to cut your extra expenditures wherever possible and use that money to prepay your home loan, You may have to let go holidaying or some unnecessary purchases as they can backfire hugely. However, make sure that the cost attached to prepayment of home loan, if any, in the form of a penalty does not nullify the benefits.
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Source Secondary

Revealance of the priority in which the debts should be paid

Easy availability of loans has made our life much easier. It’s convenient way to acquire life’s necessities. But, wait! If loans has made our life so much easier, then why people at times fail to meet the deadlines which are making their life difficult? And furthermore, it also puts you under pressure as a portion of your monthly income is truncated towards paying the EMI. If planned well, you can actually reduce your burden by shedding your liability. Now, if you have several debts to clear, aim to prioritize loan repayments to clear the most expensive ones first.

Personal loans comes first

Being unsecured loans by nature, are offered to you on the basis of good credit history or a sound income stream. Start by attacking your most expensive debt. Simply put your personal loan as bad debt, so pay it off as soon as you can. Prioritize the obligations with the highest interest rates. Paying off the highest, most toxic debt will free you up sooner and help you pay less in the long run. Plus, it will take a load off of your mind.

Unproductive loans

The other loan debts does not involve tax benefits like loan against property, gold loans, loan against insurance policies, fixed deposits and auto loan. You should repay these loans as per the interest rates. Gold loans come at comparatively lower interest rates! Loans against insurance policies, fixed deposits attract less interest rate compared to gold loans and loans against property.  Such loans captivate less interest rate in comparison to personal loans.
Finish up with home loan

Home loans are the most popular debt in India. You can enjoy tax benefits on repayments of a home loan. Home loan consumers often find themselves in a dilemma when it comes to choosing between fixed and floating interest rates. Nobody can predict which way interest rates will move and hence it all boils down to personal choice, cash flows and appetite for risk. However, you will be charged for every switch that you make during the tenure of your loan. You can prepay your loan fully or partially, depending on the terms of your loan. However, do remember that the cost attached to paying off your loan early, if any, in the structure of penalty does not restrict the benefits.
By following the above mentioned step by step priorities, you can actually enjoy the ecstasy of debt-free life. At times, you may find some investments yielding higher interest rate as compared to the interest rate being paid on the existing debt. While making any financial decision, do consider the advantages and disadvantages of either to go for paying off an existing debt or an investment.
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Source Secondary

Whether to purchase a home with cash versus obtaining finance through mortgage.

To be a homeowner of your dream house is not merely a financial decision. It is an emotional decision too. That’s why in a number of cases, despite fixing a budget, most people tend to stretch themselves to own a house that is beyond their budget.  It’s probable to think that buying a home with cash – or sinking as much cash as possible into your home to avoid the enormous debt linked with a mortgage, is the wise choice for your good financial mileage.

But it involves a lot of consideration whether to purchase a home with cash versus obtaining finance through mortgage.

Purchasing a house with cash is a very legitimate productive investment as it eliminates the need to pay interest on the loan and closing costs. In a current market scenario, paying all can also make your purchase offer more attractive to sellers as they don’t have to concern about a buyer falling out due to financing being denied. A cash home purchase also has the flexibility of closing faster than one requiring financing, which could be attractive to a seller. Those benefits to the seller shouldn’t come without a price.  Also, a cash buyer’s home is not leveraged, which allows a homeowner to sell the house as per his convenience.

Shouldering responsibilities with mortgage

At some point you would like to own a house. Then why not do it now? Yes, buying a house on a home loan, if you can afford the EMIs, makes more sense than paying massive cash. How? There are obvious benefits. Firstly, by buying a house in which you live, you are creating an asset with the easy to pay EMIs that you pay; on the other hand, paying complete cash is painstakingly as it involves your entire life money and liquidating huge investments. Moreover, you can enjoy tax benefits on repayments of a home loan. But remember that no matter how tempting it may be, don’t liquidate all your investments to purchase that dream home. Once you moved in, you will still need to go on living; in fact, if you move into a better home, you may seek a better standard of living and therefore, need more regular spending money. Further, you still need to service your insurance policies and subscribe to tax saving investments. You may be needing money for unforeseen emergencies that are not covered by insurance.

The Conclusion

The best advice when considering which option makes the most sense is to opt for the choice that gives you the satisfaction for your entire life. Also, ask yourself which will provide the greater return on your investment.

If you decide to purchase a house with a loan, make sure you can easily afford the principal, interest, property taxes, homeowners insurance, homeowner association and other fees each month. And no matter how you pay for a house, make sure to have an emergency savings account of expenses in case your personal economy declines and you need a financial safeguard.
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Source:  Secondary

Why you should buy Long Term Debt Funds?

Long Term Debt Funds will deliver Double Digit Returns reads the headline on popular finance portal. This is one of the examples, In last 3-4 months, you must have come across similar headlines multiple times if you are a regular investor. At max, the reason given was that with the drop in Interest rates, Bond yield will drop which will increase the Bond Prices. In short, Drop in Interest Rate will benefit the Long Term Debt Funds the most as they invest in Government of India Bonds and Corporate Bonds of long term maturity. Though there is no standard definition of Long Term Debt Funds but in my opinion any debt fund with Average Maturity of more than 10 years can be safely termed as Long Term Debt Funds. These funds are normally benchmarked against the G-Sec yield of 10 years or Govt of India Bonds. As of today, the yield of 10 year G-Sec / Bond is 7.799%.

Movement of Average maturity of debt fund gives the fair idea how the interest rates will move in near future. In last 6 months, the average maturity of almost all Long Term Debt Funds, Dynamic Bonds and Income Funds have increased considerably. Average Maturity of the best performing fund in this category i.e. ICICI Prudential Long Term Fund is now 19 years. 6 months back it was around 11 years. IDFC Dynamic Bond fund which is consistently rated as “Consistent Performer – Debt Funds” in CRISIL Mutual fund ratings, Average Maturity is now 15.39 years. It clearly implies that Industry is anticipating further rate cuts by RBI to fuel growth in the economy. Any rate cut will result in lower Bond yield. Lower Bond yield will increase the Bond Price, therefore, these mutual funds may deliver double digit return. If you invest in right debt funds then you can always beat the returns of traditional popular debt instruments like Fixed Deposits, Recurring Deposit, Post Office Savings Schemes etc.

Co-relation between Bond Yield and Bond Price

Before you invest in Long Term Debt Funds, you should understand the concept and co-relation between Bond Yield and Bond Price. Though in all the posts it was mentioned that with the cut in the interest rate, Bond yield will drop thus it will increase Bond Price. This relation can defined in 2 ways which don’t have any co-relation with each other. One is the scientific justification and another is Sentiments i.e. Demand and Supply theory.

Though these calculations are very complex but let’s understand with an easy and simple example. Assuming Long Term Debt Funds bought a Bond A of Rs 1000 with the maturity of 10 years at the coupon rate of 9%. In this case, Bond Price is Rs 1000 and Average Maturity is 10 Years. The Bond yield is 9%. If there is no change and status quo is maintained then these 3 data points will remain the same. The fund house will happily receive Rs 90 i.e. 9% of Rs 1000 as an annual returns. The average return of Long Term Debt Funds will be fixed 9%. The real game begins when interest rate either increase or decrease. Let’s check what will be impact on Long Term Debt Funds in these 2 scenarios

(i) Interest Rates Increase: Now assume that RBI increased Repo rate and Interest Rates are now 10%. In this case, fund house will still get Rs 90 as an annual return but as the interest rate is 10% therefore Bond Price will drop to Rs 900 i.e. absolute return will remain fixed at Rs 90 only but now this Rs 90 should be 10% of Bond Price to adjust the Bond Price. Therefore, reverse calculations fix the Bond Price at Rs 900. The investor will lose in this scenario as the value of his bond is now Rs 900 whereas he bought for Rs 1000. Let’s check why the price of a Bond A dropped by Rs 100. Let say, the mutual fund house buys another Bond B after interest rate increased (Offered after interest rate increase). The Coupon Rate is now 10% and Bond Price is  Rs 1000. The maturity of Bond is 10 years. In this case, fund house will get Rs 100 as an annual return whereas in Bond A, the fund house is earning Rs 90 only. Face value or Bond Price of both the Bonds i.e. Bond A and Bond B is Rs 1000. But Bond A will return Rs 90 and Bond B will return Rs 100. In case of status quo, For 10 years Bond A will return Rs 100 less than Bond B therefore price of Bond A is now Rs 100 less than Price of Bond B. To conclude, in case of Long Term Debt Funds if the interest rate increase then the returns drop. It can be negative also depending on the fluctuations in the interest rate cycle. In this example, we considered Bond for simplicity purpose but same co-relation exists in G-Sec yields of different maturities.

Secondly, on sentiment front the demand of Bond A will not be there if price is more than Rs 900 because the investor will buy Bond B with the higher yield at 10%. At Rs 900, the yield of Bond A is not adjusted as per market condition. Therefore besides scientific calculations, sentiments will also pull down the price of Bond A to Rs 900. If there is further anticipation of an increase in interest rates then Bond A will take further beating and may trade below Rs 900.

In this scenario, Long Term Debt Funds will decrease Average Maturity as the instruments with short maturity will gain maximum from the increase in interest rate.

To conclude, Bond Price is adjusted according to the current yield. Bond price will drop if the current yield is more than the yield of Bond and vice versa. Let’s understand what will happen when Interest Rate decrease which is the current scenario.

(i) Interest Rates Decrease: Currently interest rates are decreasing. RBI has cut the Repo rate twice by 0.25% each. In this same example of Bond A. Assume, Interest Rates are now 8%. The fund house will still get Rs 90 as an annual return on Bond A. Bond Price will be adjusted to the extent that this Rs 90 is 8% of Bond Price. Therefore, Bond Price will increase from Rs 1000 to Rs 1125. The Bond will be traded at a premium of Rs 125 i.e. 12.5%. The NAV of Long Term Debt Funds will increase to the same extent. Again let’s assume that Long Term Debt Funds buy another Bond C after interest rates are decreased. Bond Price of Bond C is same Rs 1000 and Coupon Rate is 8%. Assuming same maturity of 10 years, annual return from Bond C will be Rs 80 against Rs 90 of Bond A. In this case, compared to Bond C there will be more demand for Bond A and market sentiments will pull the price to around Rs 1125 till the Bond yield is adjusted to 8% i.e. at current rate. Long Term Debt Funds which bought Bond A at face value will get the double advantage of higher yield and appreciation in Bond Price. In Short, Long Term Debt Funds which bought at Rs 1000 will gain maximum in this scenario.

Long Term Debt Funds

As it is always mention that before you invest in any financial instrument, it is advisable to understand how to it works. In the current scenario, you can invest in Long Term Debt Funds and stay invested for next 24 months to 30 months till interest rates are dropping. The advantage of understanding the investment philosophy before investment is that it signals when is the right time to exit.

If you are risk averse investor then very simple philosophy is to invest in Long Term Debt Funds when interest rates are falling. You may shift your investment to short term mutual funds when the interest rates start increasing. Another option is to invest in Dynamic Bond Funds as they change investment strategy with interest cycle. Following are some of the Long Term Debt Funds suggestion from my end. 

1. ICICI Prudential Long Term Fund – Regular Plan (Average Maturity: 19.05 years)

2. Birla Sunlife Dynamic Bond Fund – Retail (Average Maturity: NA, roughly near 10 years)

3. IDFC Dynamic Bond Fund – Regular Plan (Average Maturity: 15.93 years)

4. DSP BlackRock Strategic Bond Fund – Institutional Plan (Average Maturity: 11.60 years)

5. UTI Dynamic Bond Fund (Average Maturity: 13.63 years)

Disclaimer: You must have observed that Dynamic Bond are preferable funds compared to pure Long Term Debt Funds. The reason being, Dynamic Bond Funds are flexible in nature as they increase the Average Maturity when interest rates fall and accordingly decrease the maturity when interest rates start increasing. Currently, Dynamic Bond Funds are like Long Term Debt Funds for me. You don’t need to actively manage these funds. To hedge risk, Average Maturity of portfolio ranges from 10 years to 20 years.

Long Term Debt Funds are Risk Free

Now you must be wondering we discussed price fluctuations of Bond Price and if interest rate fall then they may give heart attack and now they are Risk Free…That’s correct, Long Term Debt Funds are risk free because price fluctuations are normal during the interest rate cycle. The principal invested in risk free in Long Term Debt Funds. At the time of maturity, Principal amount i.e. Bond Price is redeemed to the investor. In short, if the investor or Long Term Debt Funds held the bond for 10 years then Rs 1000 will be redeemed irrespective of current Bond Price. Only fluctuation is in returns, but the principal is safe and secure.

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Source-secondary

Pointers On Things To Look Out For Before Applying for Car Loan

Car loans can be deceptive. It may seem like you’re easing the burden by paying in small chunks, but you could end up paying a lot more. We give you pointers on things to look out for before applying.

Buying a car on a finance scheme gives buyers the liberty of not having to invest a large chunk of their savings in a single investment. What’s more, finance schemes are available on almost every car on sale here. 

Finance companies offer loans of up to 90% of the car’s value, or in some cases, even the entire amount, depending on the repayment scheme and the model of the car. Our advice would be to pay as much as possible in terms of downpayment, so that the amount you return over the years (with interest) is minimised. A downpayment is the initial payment made when the car is financed, whereas the remaining amount is paid in small chunks, called instalments, over a period of time.

A car loan is, however, a double-edged sword. For starters, while it does allow you the flexibility of paying the overall amount over a certain period of time, one must keep in mind that you will have to pay back much more to the bank. As an example, on a loan of R6 lakh at an 11% rate of interest, you will have to pay back approximately R36,000 for every lakh borrowed over a three-year scheme or R60,000 over a five-year scheme.

It’s also worth noting that some loans will be offered on the ex-showroom price of the car. It’s easier on your pocket if you negotiated with the bank and got the loan based on the on-road price, as the loan will cover registration charges, insurance, road tax, and a few other costs. Also, some banks may have a really large processing fee, but if your credit history is clean, it’s very likely that you’ll get a waiver on your processing fees.

Listed below are the various parameters you should be aware of before applying for a car loan.

Eligibility & credit history

Banks set some criteria that need to be fulfilled by the loan applicant before a loan is granted. The bank verifies your income statements for a certain duration before deciding on the loan amount they deem fit to fund. They also go through CIBIL (Credit Information Bureau India Limited), which maintains records of your loans and credit card transactions that are submitted to the bureau every month by banks and credit card companies. Based on these records, they generate a CIR (Credit Information Report) via which a credit score is generated. 

Generally, a credit score of more than 700 is considered good, and makes a strong case for getting the car loan sanctioned.

Rate of interest

One of the most important factors to consider before applying for a car loan from a particular bank is the rate of interest, as it can decide your instalment amount and the total amount you will be paying above your borrowed sum at the end of the loan tenure. Interest rate charges differ according to the duration of the loan and the type of interest scheme chosen. This can be classified into two types—fixed and floating. Fixed interest rates remain constant during the tenure of the loan, whereas a floating interest rate changes according to the trends in the market. To play it safe, opt for a fixed interest rate loan.

Public sector banks generally offer lower rates of interest to the tune of 10.1-12%, with loan tenures of seven years maximum. On the other hand, private banks offer loans at a higher rate of interest of around 12.5-15%, with the advantage of having less documentation required and better service quality. Most of the loans offered nowadays are of the reducing balance type. In this scheme, as you pay the EMIs, your principal amount decreases and interest is levied on the remaining reduced amount and not the entire principal sum.

It’s also worth noting that having a long-standing relationship with a particular bank can get you good offers. Car loans are also customised according to car models; popular ones generally get the best loan offers as compared to slow selling models. Get all the options on the table before selecting the right one that meets your requirements and expectations.

Package deals

A convenient option is to take a car loan from the purchased car’s dealer as they have bank representatives or tie-ups with banks to offer lucrative deals as part of a package that includes loans, insurance waivers/discounts and car accessories. Dealers earn a commission on the items they sell, but sometimes, a little higher interest rate or insurance package maybe negated by the accessories offered free with the car. It’s better to evaluate the options from the dealer’s side, as well as directly from the bank or insurance company to ascertain the best deal before taking the plunge.

Avoid penalties

An important factor to consider when choosing a bank loan is foreclosure, which, simply put, is the closing of a loan earlier than agreed by paying off the remaining debt. On a recent ruling by the Reserve Bank of India, a verdict was passed wherein prepayment (making a payment that’s more than your regular EMI, hence reducing the principal amount that has to be paid back) penalties for loans that have been purchased on a floating rate of interest will be waived. If a foreclosure of the loan is on the cards, be prepared for high foreclosure. A penalty for the same is waived if the next loan is purchased from the same bank after the closure of the earlier one. Some banks also do not allow you to foreclose before a certain period.

Other charges

Bank loans come with other charges like processing fees and late payment fees. Some banks charge a flat processing fee while others charge a percentage of your loan amount as processing fees. A late payment charge, generally to the tune of 2%, is also levied on the EMIs. These charges, although minor in number, should be evaluated as part of the decision making process. As an example, on an EMI of R10,000, and with a 2% penalty fee charged, your overall EMI for that particular month would be R10,200.

It’s clear that there’s a fair amount you should be aware of before considering a car loan. Different banks offer varying loan rates in an attempt to lure customers, so it’s important to consider these aspects before zeroing in on a finance scheme.

It’s important to remember that CIBIL maintains records of your credit history, based on which a credit score is generated. This will determine how credit-worthy you are, and the better the score, the better your chances are of getting a loan amount required by you approved.

What’s more, a long-standing relationship with a bank can also go a long way in helping you get a finance scheme that suits your needs the best, with little documentation required.

Source: Secondary

How to figure out the best budget for you

One of the pitfalls of personal finance is that it’s easy to get caught up in the idea that there is a “right” way to do things. This can spill into budgeting, even though the way you budget is likely to be as personal as any other aspect of your life.

Before you decide what budgeting strategy is likely to work best for you, think about your relationship with money so that you can get a feel for what will help you stay on track.

Understanding your money personality

In the last few years, there have been many experts labeling money personalities based on some of the habits that characterize consumers’ spending. Here are some recommended different budgeting strategies based on the way you interact with money:

1. Spender: “This is someone who has enough money, but likes to make big purchases,” . Rather than getting caught up in nickels and dimes, the spender might budget according to percentages. Setting up a system where 20% might go to savings, 30% might go to housing, and so on, depending on priorities and preferences.

2. Saver: A person , which focuses on control over money. “The saver might use a detailed Excel spreadsheet to keep track of accounts daily.” The saver is always watching the spending and looking for ways to cut costs.

3. Shopper: “This is someone who spends emotionally and might be in debt,”. “The best type of budget for them might be an envelope budget.” When the money is gone, it’s gone. An envelope budget forces you to pay attention each time you spend, since it is usually a cash-based system.

4. Planner: When you’re a planner, you see your money as a means to your end goals. You look ahead, directing your resources to where they will do the most good to help you in your lifestyle now and later. 

5. Investor: “An investor is usually very money savvy,”  “They might not even need a budget, or they could use a combination of the aforementioned methods to stay on top of things.” The investor uses money to make money, and often plans ahead, incorporating earnings from interest and investment returns into the plan.

Sticking to your budget

There’s nothing wrong with experimenting a little bit with your budget to see which strategy most appeals to you. At the very least, it’s important to have some way of ensuring that you don’t spend more than you earn each month.

One of the problems with sticking to a budget, is that many people don’t acknowledge the realities associated with their money habits. “Once you figure out your money personality, the best thing to do is accept it,” . “If you know you are a shopper, you are aware that sometimes you spend on things you don’t need.”

Just being aware of that can help you place safeguards in place with your budget. Before you rush into budgeting, take the time to review what matters to you. Track your spending for a month or two so you can identify your major spending categories — or even discover money leaks that you would like to plug.

Once you’ve done that, you can figure out your money personality, and even consider changing it if you aren’t happy.“Fortunately, if someone isn’t happy with their personal money style, it just takes a little self-awareness and perhaps a good budgeting method to turn it all around.”


Manage your finances and learn about it. Visit www.cibilconsultants.com

It is important to stay credit healthy

A sound credit history can be your most precious financial assets. If your credit health shows that you had been prudent in paying off your debts, you will not only be able to qualify for credit whenever you need it, you will also be able to borrow money at the lower interest rate. Lenders use these credit reports to evaluate your ability to repay, your character and any joining to take a decision to entrust you money. These ratings are also used by debt financing firms, investment banks and dealers to know your credit potential. If you find that there are discrepancies in your credit report but neither have time nor knowledge how to remove name from CIBIL defaulters list, it is better to hire an experienced and professional credit repair agency.

By delegating responsibility of eliminating errors from your credit report into the hands of professionals, you can utilize your time and efforts in completing your other essential tasks. Also, professional firms make sure that your credit repair process is completed without any procrastination by taking immediate action on all procedural formalities. 

There are many who believe to take help of professional credit repair agency at-least once in a life time so as to understand all the procedures and tricks to eliminate problems with CIBIL report as well as to understand the procedure so next time, they can do it themselves.

Remain credit healthy and creditworthy by opting for appropriate credit health packages at www.cibilconsultants.com

Source: Secondary

How much debts are beneficial for you ?

Debt is an important tool which helps you finance large purchases, open a business or even help build your credit score. It is a topic on which different people have different opinions; some find it acceptable till the time you have enough resources to pay it back while some think it is not necessary and that it would become a big liability on your finances.

But we have to remember that debts do help you finance big purchases when you don’t have enough cash flow and it also forms a big part in shaping up your CIBIL score, we just need to know where to draw the line. But when debt become too much? Till How much debt is beneficial for your credit health?

There are guidelines by the lenders on how much debt you should have. Your debt shouldn't exceed a certain percentage of your income. You should have enough income to cover off your debts as well your interests.

When you start missing out on payments, work overtime to pay off your debts, use up your savings- that’s the time when you have crossed the ‘beneficial debt’ line. The debt is no longer beneficial to you and it would start harming your credit score now. Till the time you use it responsibly, debt is a great credit tool but if not it becomes a big dent in your finances.

Before taking additional debt, keep these points in mind.

• The most important one- you should have enough income and savings to cover your payments for the debts( including interest)

• Always go into debt when you are confident you receive a ROI (return on investment).  If you don’t get  good returns, there's no point in going for the debt. Research well on the debt’s ROI value before you go for borrowing.

• Check if you are qualifying for a good interest rate. Calculate the overall charges in the long run. For e.g. - if getting a house at a low interest rate would be better than renting. If you are not getting a good competitive rate, then take a little time look at your options or if you have a bad credit score, rebuild it and then go apply again.

If you'll follow above mentioned measures, then the debt you are going for is not too much, but if you can’t then that debt is obviously gonna too much.

Repair and enhance your credit score by just selecting suitable package available at www.cibilconsultants.com

Source: Secondary

Obsessed with credit score ?

"Recently, I received my credit score from Credit Information Bureau India Limited (CIBIL). Despite paying all my loans and credit card dues on time, my score was only 805. My friend, who has a similar history, has a credit score of 820. I want to know how to increase my credit score."

The number of such queries on our website has increased significantly, especially after CIBIL ran a series of television advertisements, highlighting the importance of the CIBIL score with the tagline, "Aage badhne ke liye naam nahi, number zaroori hai."

Thanks to the increasing awareness and television advertisements, most people are aware about credit scores provided by CIBIL, based on its analysis of the repayment information from lenders. It uses the information to arrive at a score between 300 and 900. The score is an indication for banks - the higher the score, the lower the chances of a default on a credit facility (loan or credit card). In a number of developed economies, including the US, every 10-point increase in the credit score might lead to significant variation in the interest rate.

As such, if the person querying the score was in the US, his concern about a 15-point difference between his credit score and that of his friend's would have been justified, as it might have meant a 0.25 per cent difference in a 30-year home loan annually. In India, however, we have seen credit scores are essentially used to eliminate applicants, rather than provide them preferential terms. So, you should worry if your score is below 750, as you might not get a loan in this case. But this doesn't mean if the score is more than 750, you would surely get a loan; a lender would look at several other factors. Believe me, your score of 805 and your friend's score of 820 wouldn't be considered different, as long as other things are the same.

In its circular on zero per cent loan schemes, the Reserve Bank of India had acknowledged the return on investment was generally flat and indifferent to customers' risk profiles.

As far as an answer to the anguished query at the beginning of the article is concerned, the calculation of credit scores by CIBIL is a secret, as are the code to the US nuclear weapons or the original Coke formula. But the good news is you need not try to crack this.

Broadly speaking, if you pay your debts and bills on time and have a reasonable amount of debt, in line with your income, the situation is fine. You are already doing well, as proved by your rather high score of 805. Now, stop obsessing about the score; it doesn't matter as long as you don't take too many loans or default on a loan or a credit card bill. Since, you already know your existing credit score, which is good, you could keep asking for your credit report once a year, for monitoring. You are already in good financial shape, as far as your ability to borrow is concerned!

And, you should petition the regulator for access to your credit report free of cost once a year, as is the norm in many developed economies.

Access your credit report and know your score along with its improvement and maintenance by just booking an appointment at www.cibilconsultants.com

Source: Secondary

Experts speak about rules to create wealth

To create wealth, investors should keep in mind some basic rules that are simple to follow. Here are some of the most important ones from select financial planners, an investment analyst and a top professional in the credit information industry: Save, invest and understand where & why you are investing: We understand that we need to invest but very few understand that we can invest only if we first save. It's important to know how much you earn and spend to arrive at what you can save. It's also important to understand the risks associated with equities, fixed income, commodities, gold, international funds, real estate, etc, and also the resultant return expectations. Also, understand why you are investing. -Shalini Dhawan (SD)

Systematize investing: Being busy individuals, the last things on our minds are handling paperwork, cheques, banking errands, etc. Hence, there is a need to systematize: Automate investments to selected avenues on monthly, quarterly, yearly basis by using technology, available systematic investment plans (SIPs), triggers, alerts, ECS, etc. -SD

Diversify: Diversification across asset classes and within each asset class can eliminate risks emanating from concentration, liquidity, credit, interest rate and currency . This will reduce the overall risk to the portfolio. However, diversification beyond the optimum level does not reduce the risk to the portfolio. -B V R Venkatesh (BVR)

Safety has a price: If you are one of those risk-averse investors, chances are that your savings would be locked into various fixed and recurring deposits.However, over the last few years, you must have got negative real returns. That is, your returns were less than the rate of inflation. In other words, the interest income from deposits has not helped you keep pace with rising costs of goods.That also amounts to erosion of capital -you have lost it through inflation. So, remember to build an inflation-beating corpus through investment sacrosanctness classes including equities, debt, gold and real estate. — Vidya Bala (VB)

Consistency & discipline pay: Emotions interfere with investing — sometimes they work for us and sometimes against us. So, be disciplined to invest a certain amount every month and systematize it. There are many examples of SIPs in diversified equity mutual fund schemes generating sizable corpuses, where investors have consistently run SIPs. Also, discipline yourself to refrain from going off an agreed asset allocation and investment strategy. — SD

Save on taxes to build a kitty: A large number of people focus on expenses like children's education, home loan repayment, etc, for tax deductions from their salary. You should also look into Section 80C investment options seriously. Here you can find investment options that can save on taxes and also build a long-term portfolio with good future returns. These options include equity-linked savings schemes (ELSS), various provident funds, NSCs, five-year tax-saving deposits, etc.

ELSS could offer you the best deal in terms of superior tax benefits and higher returns in the long term. These funds have a lock-in period of three years and compare favourably with other options like five-year tax-saving bank FDs, fiveand 10-year NSCs, or 15-year PPF. The gains from ELSS that accrue are also exempt from capital gains tax, while gains from five-year tax-saving deposits are fully taxable. -VB

Monitor and review: After you have put in place an investment strategy and implemented it, periodically check if the plan is working for you from every possible angle. If you have moved away from the agreed plan, change the asset mix. If that means exiting under-performing investments, do that. -SD

Mind your credit score: Like in business, in personal finance too credit line availability plays a critical role. Today, institutions consider both borrowers' income profile as well as their repayment behavior across earlier liabilities while deciding their creditworthiness. A credit score of an individual is increasingly becoming an integral part of banks' appraisal process in determining whether to grant credit as well as its quantum.The higher your score, the better your creditworthiness and more are the chances of your loan application getting approved. Financial discipline in paying back the borrowed amount (EMIs) on time and as agreed to the lender is the foremost step to ensure a good credit score. Monitor your joint loans or loans where you are the guarantor regularly .It is advisable to get a copy of your credit report at regular intervals when you start taking debt, especially after opening or closing of new credit accounts. In case of any error, get it corrected without delay . -Mohan Jayaraman (MJ)

Seek professional help: We are ready to seek help from dietitians, doctors, lawyers, etc. Likewise, we also need professional help to nudge us into an investing habit. -SD

SD: Shalini Dhawan, cofounder & director, Plan Ahead Wealth Advisors BVR: B V R Venkatesh, director, Value Invest Wealth Management VB: Vidya Bala, head - mutual fund research, FundsIndia.com MJ: Mohan Jayaraman, country manager, Experian India

Source-secondary

Mortgage and Credit Score

In simple words, a mortgage is a way to use property like land, building etc. as a guarantee to get a loan. Credit score affects mortgage to a great extent as it is one of the eligibility criteria in getting a mortgage loan. The reason for this is that lenders want to make sure that their investment would make profit or at least get recovered. Your Credit score defines what kind of mortgage rate you would get, which would in turn help you identify what kind of home you can afford.

When you are looking to get qualified for a mortgage, your credit score and credit history are the first things in which the lender would be interested in to check your eligibility.

A good credit rating always helps when you are getting a mortgage. Even during financial crisis, people with good credit scores get mortgages with very less down payments. Analyzing your credit report, the lender makes decisions about the terms of qualification of your loan. Therefore building your credit score is the first step you can do to qualify for a mortgage.

Mortgage eligibility credit score recommended is usually above 500. A credit score of 500 to 520 is the lowest what lenders would go, anything less than that would disqualify you for the mortgage loan. People with high credit scores above 750 are the ones who get varied loan choices and also low interest rates.

Your credit history, other than contributing to your credit score, also influences the lender’s decision. The lender would want to see if you have been bankrupt, your payment history and also If you have had any collections. This will help the lender analyse your financial behavior and if you are about paying off debts or not.

Since, we saw above how credit score is important ingesting qualified for a mortgage loan, let us now deal with what a credit score is-

It is a calculation based on credit history which would help in determining your credit worthiness. It is important because it helps the lender figure out if his money would be safe with you or not.
Lenders rely on the information given by  CIBIL to determine whether lending you money is a smart move or not. If your credit is more than 750, then lenders would deem you credit worthy for a mortgage and give you their standard loan options.

Your best bet to get a good mortgage rate is to have a credit score more than 750. A CIBIL score of 500 is bad and would h. Some lenders would also expect you to part with at least 50% of the purchase values if you are trying to get a mortgage with such low scores.

So, all this shows how credit score affects mortgage and how important it is to have a good credit score.For score improvement and repair opt for service packages available at www.cibilconsultants.com
hurry book an appointment now !

Source: Secondary