A little bit of planning and discipline can go a long way to help you repay your student loan quickly and live debt-free. Here’s an expert’s advice on paying off EMIs that can help reduce the size of the education loan interest component, fetch you tax deductions and fast-track repayment.
A little bit of planning and discipline can go a long way to help you repay your student loan quickly and live debt-free. Here’s an expert’s advice on paying off EMIs that can help reduce the size of the education loan interest component, fetch you tax deductions and fast-track repayment.
Repaying any loan feels tough and at times, even impossible. Whether you have taken an education loan to start your career or for increasing your skill-set; here are a few ways to fast track the repayment of your education loan and be debt free.
There are opportunities to start earning while you are still a college student, with a part-time job. You could save and invest this income and build a decent corpus that could be used to reduce your loan outstanding from the time you start repaying the loan.
Suppose you save Rs 1,000 a month, earning 8% returns over a two-year period of your education; it would add up to Rs 26,100 which, when deducted from your outstanding loan amount, can reduce your EMI outgo or loan outstanding tenure. If you could save and invest more, the possibilities are immense.
Whether you are starting your career or already employed, the virtues of living with a budget from the bedrock of financial prudence. By planning and understanding your monthly cash flow – income and expenses – you can make some necessary sacrifices and avoid falling off the budgetary wagon.
One could set and stick to a monthly savings goal with a budget, and the savings could be utilized to make more than the required EMI payment where possible. There are several online resources for preparing and tracking one’s budget, use them to your advantage.
The government offers an education loan interest deduction on your taxes for interest paid during the year on qualified loans. Under Section 80E, individuals are eligible for tax deductions when the education loan is taken from recognised banks and non-banking finance companies (NBFC). Remember, that the tax benefit is not available on money borrowed from friends and relatives.
The income tax deduction can be claimed only on the interest component and for eight years by the person under whose name the loan has been taken. This is a wonderful window to reduce your tax liability, and could be well utilised.
There are numerous creative ways to save, but it all starts with being willing to make a few temporary sacrifices for some long-term gains. Reduce your expenses, and there are many ways to go about it. Explore the difference between your financial needs and wants; this will go a long way toward securing your future – you would be able to save smartly for your financial goals and live within your means.
If you are lucky with friends and family who could lend you money for the short-term and on discounted interests – go for it. Don’t be embarrassed when borrowing from siblings and friends to pay off your education loan. Not only are you debt free early; you may be able to deploy your savings into better earning investments to repay the money borrowed and have money to pursue other financial needs and goals.
If you are paying just the EMI, your loan repayment will continue for the entire loan tenure. While longer repayment tenures come at the cost of higher interest repayment, you could try and make regular prepayments or increase the EMI if possible. By making larger payments, you will be able to attack the amount you owe at a quicker rate.
Explore online education loan calculators to check how increasing the EMIs would reduce your loan tenure and effectively, the overall interest outgo. For instance, on a Rs 20.2 lakh loan for 10 years at 8.5% interest, the EMI works out to Rs 25,000. However, if the EMI goes up to Rs 30,000, the loan tenure reduces to just 7 years and 6 months. You basically repay the loan 2.5 years before time.
Debt of any size can seem overwhelming, especially if it takes you some time to find a job. At the same time, a good payback strategy is the one that is reasonable for you and your income. By following some of the above steps, you can get on a fast track to ending your education loan debt for good – and, the faster you get rid of your loan; the sooner you can live life on your terms.
Narayan Krishnamurthy is a believer in financial literacy and awareness, and works on promoting both. For the past two decades he has been writing to simplify personal finance. He also works as a personal finance trainer.
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