Debt repayment to retirement planning, how to use your gratuity amount wisely

financialexpress.com:

Instant financial gains in life give you an opportunity to either use them to reduce your financial burden or make the most of them by investing the gains aptly. Gratuity is one such monetary benefit given by an employer to an employee. It is a lump sum amount given at the time of retirement, resignation, or upon an employee’s death or disability.

The payment is governed by the Payment of Gratuity Act. Gratuity becomes payable after an employee completes five years of continuous service with the same employer. To make the most of this gratuity amount, it’s essential to plan carefully. Here are some tips to use your gratuity wisely:

If you have any outstanding loans or debts, using your gratuity to pay them off can provide immediate financial relief. Clearing high-interest debt like credit card bills or personal loans should be a priority as it helps in reducing financial stress and improving your credit score.

Adhil Shetty, CEO, Bankbazaar.com, says, “With a higher credit score and reduced existing debt, lenders view you as a lower-risk borrower. This perception increases your chances of securing additional credit when needed, be it for emergencies, investments, or significant life events.”

“Partial repayments reduce the loan tenure, enabling you to pay off your debts earlier than originally planned. This early repayment not only saves money on interest but also provides financial freedom,” adds Shetty.

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Allocating a portion of your gratuity to build or enhance your emergency fund is a prudent step. An emergency fund should ideally cover 6-12 months of your living expenses and acts as a financial cushion during unforeseen circumstances