Save money! Re-write your loan book

There has been plenty of talk about interest rates fall and more good news is expected on this front. While the interest rate story is generally associated with home loan borrowers, they are not the only beneficiaries of the soft interest regime. Since all of us are directly or indirectly affected by interest rate movements, it is time to take advantage of the fall in rates. Just check out how you can benefit from the same.

Credit card dues

If you haven't read any report relating to fall in interest rate on your credit card outstanding, don't be surprised because there is none. There may be a general downtrend in interest but credit card companies continue to charge interest in the range of 40% for those who fail to clear their dues completely. Hence, stop using your card as a loan product and on the other hand, use other options to close your dues. Personal loans, which are available for an interest rate of 14-18%, are a cheaper option when compared with credit cards. If you find a banker who can give you a personal loan, use the same.

Your guide to health insurance cover

Even converting the dues into EMIs or transferring the dues to another card company with the option of clearing in instalments can be some of the other options. When credit card dues are taken over by another company, the rate comes down though the monthly EMI might go up. But it would be still advantageous as the interest outgo comes down and more importantly, it helps you get rid of high cost debt.

Why you must choose the right ELSS fund

Shift from fixed to floating

A couple of years ago, fixed rate looked an attractive option as interest rates went up by as much as 30-40% on home loans. While some saw their EMIs going up by a few thousands, the tenure got stretched for many others. If you are a borrower with a couple of year old loan account, you need not fret over the missed opportunity. While floating rate borrowers would be automatically eligible for the fall in rates, those who have opted for fixed rate option can shift to floating. Since, interest rate is expected to remain soft for the next couple of years, the move is unlikely to be risky.

Make tax planning a family affair

Besides opting for shift in plan, borrowers can also look out for change of lender as the rate range has widened in the last few months. As you would have noticed, public sector banks have lowered the home loan rate by a wider margin when compared with private sector banks and hence, shifting the loan from former to the later can be one of the options.

Deposits to gilt/income funds

Buying insurance to save tax?

The falling interest regime can be good news for investors as it improves the yield from rate sensitive products such as income funds and gilt funds. The yield from these schemes is inversely proportional to the trend in interest rate which means they go up when rates are falling and vice versa. Though much of rate cut has already happened, there is room for another couple of percentage points and hence, investors can look at allocating debt corpus towards income funds/gilt funds. If you have invested in fixed return products with annualised yield of 7-8%, the same can be relocated to income funds as the yield is expected to be in double digits over the next 12-15 months.

IN a box:

• Shift from fixed rate to floating rate option for your home loans
• Retire your credit card dues with the help of personal loans
• Transfer of credit card dues to a fresh card issuer with EMI facility can reduce interest burden
• Shop around for a home loan provider to reduce your EMI

Srikala Bhashyam is the Managing Partner of RS Consultants. She runs an investment-consulting firm in Bangalore to provide consultancy in the areas of financial planning and media. In the last 15 years, she has worked with top publications in different locations. The primary focus of all her columns is to simplify the nuisances of Finance, which has attained a new look over the years. Besides being a columnist, Srikala has also been closely associated with some of the prestigious book projects.

The author can be reached at srikala.bhashyam@gmail.com

The views expressed in the article are the author's and not of Sify.com.

SEARCH