How do I pay 2 loans most efficiently?
Hey Grapeviners,
I need help from all the experienced folks out there.
I and my father have 2 loans:
- Educational Loan EMI - ₹6500/month for 15 years (₹ 7 lakh loan)
- Home Loan EMI - ₹22500/month for 9 years (₹ 17.5 lakhs loan)
I am 22 and started my full-time career this month and wanted to understand how to repay 2 loans along with my father quickly with less financial burden. (I am the only child)
My expenses -
- Paying Home Loan EMI - ₹ 22500/month
- Investments - ₹ 30000/month
- Petrol - ₹ 5000/month
- Miscellaneous - ₹ 5000/month
- Left with - ₹ 20500/month (lumpsum)
Should I create an emergency fund for myself first with the remaining amount or what else should I do, totally blank in this case?
My father looks after the household expenses, education loan, and his own investments. Not sure, how much he is left with at the end of the month as I am not aware of his income. (He has a private job)
P.S. -
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I spend consciously and don't have a bad spending habits. I love to drive (bought a car myself in Dec 2022) and climb mountains, so I manage to do treks every 3 months.
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I am rigid about my investment amount, so may not compromise on that part.
Would be forever grateful, if I get some helpful suggestions.
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Can you also tell us your age?
Ideally the goal is to pay down higher interest loans first.
You need to optimise for lower lifetime payment, unless liquidity is extremely important to you.
Already mentioned. I am 22 years old.
Check how your loans are structured. Whether principal is paid first or interest. Whether prepayment penalties exist etc.
Ideally minimise the total payment amount as step 1.
If you can’t do that then, maintaining deep liquidity is important.
Pay off the higher interest loan first if there are no prepayment penalties. Yes you should create an emergency fund. If you are left with 20k every month, start with safest option of Recurring Deposits or Fixed Deposits
Why not debt mutual funds?
Your emergency fund should be something that has minimal to low risk. It’s for emergencies only. You can also just keep it in your bank account and do nothing but RDs and FDs nowadays allow instant withdrawal with good interest rate so you can try that
The first variable to consider is the interest rate on both the loans.
What are your interest rates? Don’t payback your loans in a rush.