1. How much of your debt was reduced?
Tracking your debt reduction should be a crucial step in understanding your financial position. The lower the debt, the more money you have for other purposes - be it meeting your financial goals or investing. You may have been repaying your debts every month, but what you need to look here is if you are on track to close your debts as early as possible.
First step to understand your debt progress is to get the loan statement from the bank. Mind you, in recent times the interest rates have gone up. So do have a closer look at the interest rate and see how much of the rate has been increased and how does it affect your EMI.
There are a few check points to measure your debt levels and position yourself.
a. Number of debts you have
How many of your debts are on the verge of getting closed (or lower outstanding amount). You may consider closing these debts as early as possible so that it can free up some amount which can then be used to further reduce other debts or invest it or simply use it elsewhere.
b. Interest rates of each debt
The rule is simple. Higher the interest, the faster you should close it. Look out for interest rates in your loan statements. There is a good chance that it has been increased since last year. It is important for you to know the rates and you could then plan on which loan needs to be reduced at the earliest.
c. Personal Debt to income ratio
Just divide the amount you pay towards debts every month by your monthly take home income. This measures how much of your net income goes into repaying your debts. The lower the number is the better it is. Thumb rule for this is your EMI should not be more than 40% of your monthly income. Banks tend to be cautious when your debt is higher than this number.
2. Check your Credit Score
It is very critical to keep a check on your credit score periodically. It becomes all the more critical with the new age scams. You never know if there is any loan taken in your name without your knowledge. Credit report also helps you in understanding your financial position from the banker’s perspective. This report also shows if you have been using any 3rd party payment apps like Slice, Paytm, Ola Money etc. This is the report the banks check when you go to them for any loan.
3. Review Investment allocations
You may have invested in multiple stocks, a few mutual funds, may be in some Fixed Deposits or even have some cash in bank. It is important to assess your allocations and rebalance your investments. Do weights of individual holdings, sectors and markets and tally it against your investment strategy. With markets near its all-time high, some assets might have grown exponentially and might harm your future growth. You may have invested a large chunk of your money in risky funds while you may be approaching a financial goal. Or you may have been investing in very safe funds. What you need to do is check your allocations and see if you are comfortable with it. If not, it would be ideal to plan on rebalancing.
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