While personal loans are a convenient way to borrow and meet your financial needs/ emergencies, being financially literate will help you in taking the right financial decision and prevent you from falling into a debt trap.
What is Financial Literacy?
Financial literacy is the knowledge that enables you to take wise financial decisions. In other words, it simply refers to “knowing how to manage money”. Financial literacy is an essential life skill. It is extremely important to inculcate financial literacy from a very young age.
Importance of Financial Literacy
Financial literacy helps us on:
- Budget: How to spend, save, invest money, etc.
- Taxation: Tax planning, tax rate, tax-saving instruments, etc.
- Borrowing: Credit score, credit management, repayment planning, how much to borrow, etc.
- Investment Planning: Various types of investments; how to analyze risks and how to weigh the pros and cons.
- Goal-Based Investment: Various investment options and which to opt for to reach our financial goals.
- Preparing your estate: All that we need to know about long-term investments and investments in property/estate.
5 Things to Keep in Mind While Choosing a Personal Loan
- Compare interest rates: Choose the bank that offers a loan at a lesser interest rate.
- Compare bank fees and charges: Choose a bank that does not charge too much fee over the long run.
- Repayment flexibility: Choose the bank that does not charge foreclosure fees or wherein the foreclosure fees are not too high.
- Affordability of EMI: Before you avail a personal loan, it is important to understand whether you can afford to pay the EMIs on time.
- Checking other options: It is good to have backup plans just in case the bank doesn’t give you a loan. You could try borrowing from friends and family.
4 Ways to Manage Your Personal Loan:
- Budgeting: Budgeting can help navigate you through paying your loan EMIs responsibly.
- Timely payments: Paying your loan on time can help avoid the penalties due to late payment.
- Paying extra: Paying above the minimum loan EMI can help to reduce the EMI period.
- Debt consolidation: Instead of paying multiple debts to various different loan sources at different interest rates, consolidating your loan can help to simplify the loan payment process, by taking up a single large loan to pay off smaller loans.
