Money tips in time of COVID-19: Should you pay your loans first or save money for future?

Due to the COVID-19 pandemic, there are a lot of uncertainties around the globe, which is incorporated with the financial crisis as one of the most vital factors. More than 50 percent of Indians are facing financial problems due to lack of jobs, unemployment, salary cuts and businesses closed, in order to maintain social distancing to suppress the COVID-19 pandemic as much as possible. In India, unemployment rates are rising incessantly and there is economic fall down due to future COVID-19 pandemic. So, what should one do in such a situation where all major sectors are struggling for their survival and people don’t know how to pay their debts on time? Well, you are not only the one who has to pay the loan EMI along and have some better saving options to secure the future. So, we will guide you with a few steps by clearing the doubts on if you should pay your loans first or save money for the future?

 
Saving and paying your debts depends mainly on a few criteria which are: If EMIs interest rates are low then save money first before paying EMIs. Secondly, if your rate of interest is high then pay your dues first and then save money. Thirdly, check your income and spending together by making a proper budget plan, then decide how much cash you have. Due to COVID-19, people don’t know what will happen in the future so decide accordingly.
 
1. Prepare Budget before paying any dues:

 

Remember, the budget plays a very important role to deal with any financial process. Prepare your budget in such a manner where you can divide your savings and spendings accordingly. Due to pandemic lot of people lost their jobs, there are salary cuts and businesses are shut. So, income has reduced suddenly. One should revise their budget and plan according to the needs. Check what is more important first; your savings or paying the debt. Reduce the limit of your budget by cutting down all useless expenses. Spend less and save more should be the mantra these days. If you really don’t need anything then don’t go for it. Try to save money as much as possible. Even though you feel you are not in need of emergency funds save some part of your income. Try to clear all your dues on time sequentially to avoid any extra interest charges in the future. 
 
2. Pay your dues if the interest rate is high:

If you have saved some emergency fund for the future then try to first pay your all your debt. Else, you will get trapped to pay a high rate of interest in the future. Adhil Shetty, CEO, BankBazaar says- “If your income is strained to a level where you have to pick between your EMIs and continue your saving options, pay your EMIs. Even though you have the option of delaying your EMIs with the RBI-mandated moratorium of six months, you should prioritize paying your EMI dues.”

 

Remember, investing your money is optional but paying your EMIs is an obligation. You can pause or cancel your savings for the time being but to avoid any high rate of interest and extra charges repaying your debt on time is mandatory and an obligation for all. “If you deferred the first five EMIs of a 20 year home loan, you’ll end up paying 30 EMIs. Hence, using the moratorium while you can pay your EMIs is a costly option” also adds Shetty
 
3. Go for emergency funds if your interest rate is low:

 

It’s important to keep in mind that an emergency fund is something that will always help you in need. Nobody can predict the future, so if you think avoid paying EMIs for 6 months by option RBIs loan moratorium option then go for it and save money as an emergency fund. Your emergency fund should be more than 3 months EMIs. You have to cut back as much as possible in order to keep the cash flow. Prepare yourself for any next emergency now.
 
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