Thread by @MoneyWell_

How to pay off debt faster ⚠️

Do you want to spend the rest of your life paying off loans?

What's the use of your life then? Pay your debts until you get old, then retire without even enjoying your beautiful life⁉️ Don't do this!

So, learn how to repay your debt faster👇

1/ Do you know?

An average American has $90,460 in debt, according to a 2021 CNBC report. That includes all types of consumer debt products, from credit cards to personal loans, mortgages and student debt.

Teenagers, who haven't even started earning yet, are under debt in USA

2/ Debt is like a termite. If you don't get away with it sooner, it will eat your whole life up until you remain with nothing.

So, before throwing yourself into debt, understand everything about it and make a plan. Learn How to pay off debt faster.

3/ So, Here's how to repay your debt faster

Let's assume,
Mr. Trump has taken a 25 year home loan for INR 40 lakh (US$54,000) @ 8% from Citi bank. The EMI or Equated Monthly Installment turns out to be INR 30,000 (US$408)

So, Monthly payment = US$408

4/ What most people think is - Out of US$408 (EMI), 50% goes towards paying the loan & 50% goes as interest.

That's not what happens, my friend❗

Reality is,
In the beginning, when you start paying EMI, the majority of it goes towards interest & a mere amount goes towards loan

5/ Now, lets get back to the example:

Loan - INR 40 lakh
Interest - 8%
Tenure - 25 yr

EMI - INR 30k
Principal amount - INR 40 lakh
Total interest paid - INR 52 lakh

This means that after 25 years he would have payed his principal amount (INR 40 lakh) & Interest (INR 52 lakh)

6/ What? Trump is paying more interest than principal amount itself.

So, to reduce the total interest he would pay, what he can do is reduce the tenure of the loan.

If he could pay his loan in just 15 years, then - the total interest he pays reduces to just INR 28 lakh.

7/ Yes, he has just saved a whopping INR 24 lakh in interest payment, just by paying off his loan faster.

8/ But, how to pay off loan faster?

☑️ Just pay one extra EMI each year.

9/ See, EMI - INR 30,000

So, instead of paying EMI 12 times a year, he pays EMI 13 times a year.

One extra EMI payment each year will reduce his total interest payment to just INR 39 lakh from original INR 52 lakh. That's just 13 lakh saved.
And, tenure will reduce to 20 years.

10/ What if, instead of 1 extra EMI, he pays 2 extra EMI above the fixed 12 EMI per year?

Now,
Total interest paid - INR 32 lakh
New tenure - 16 years

So, just 2 extra EMI per year will save him INR 20 lakh on interest payment & reduce the loan tenure from 25 years to 16 years.

11/ But trump say, "@MoneyWell_ I can't afford to pay 1 extra EMI per year. It will affect my financials."

I say, No issues. We'll find some other way :-)

12/ ☑️ Try to increase your EMI amount each year (By reducing other unnecessary expenses and putting your increments/Bonuses into paying out debt)

This is obvious that every year he will get an increment/Bonus on his salary.

13/ Can he put that money in repaying loan? Yes, he can!

So, what he can do is just increase his EMI payment each year. Say, he increases his EMI by 5% each year.

Believe me, a 5% increase is really just a small amount. This won't affect his finances in any way.

14/ But, this small increase will help him get out of his loan much faster.

Mr. Trump has agreed to increase his EMI by 5% each year.

Now,
Total interest paid - INR 29 lakh
New Tenure - 15 years

Yes, you read it right.
A mere 5% increase in EMI helped him save INR 23 lakh.

15/ Now, just assume instead of 5%, he increases his EMI by 10% each year. The loan will get fully repaid within 10 years.

That's just 🔥🔥🔥

So, can you do this? Then do it.
Be consistent and pay off the debt.

16/ In short, to pay your loans faster :-

1️⃣ Pay 1 extra EMI each year (Or as per your convenience)

2️⃣ Increase your EMI by 5% each year (Or as per your convenience)

That's it! Follow the above advice & you'll easily pay off your debt much faster and also would save a lot.

So that was "How to pay off debt faster!" I hope you found it useful.

For more educational threads on money, finance, and economics, do follow the page @MoneyWell_