The Buyt Desk
Sometimes taking multiple loans becomes unavoidable, and we take that even after knowing it will increase the debt burden. For the same reason, financial experts warn people from taking such extreme steps. They warn us because the situation of not paying off the debt would jeopardize life. A loan that saved you or gave you a sense of pride at some point in life could become a perennial reason for pain.
So, if you are already in debt and want to know how to clear them as soon as possible, here are six smart ways to handle such a situation.
Keep Loans at a Manageable Level
While taking multiple loans, plan it in a way that you don’t end up paying more than 40 per cent of your income in EMI. This way, due EMIs will not strain all your money and make you struggle with managing your other monthly expenses. Nevertheless, it is subjective because if you have fewer liabilities, you can go up to the 40% level, but if there are liabilities, like dependents, you should try keeping this percentage below 40%.
Check Your Expenses
Monitoring expenses help in managing funds. When you have debts to pay, keep that in priority. Try to spend your money only on crucial things such as school fees, electricity bills, etc., and skip spending on stuff that could be postponed, such as organic food, shopping for dresses, and buying other luxurious items. You would be able to save a lot of money and use it to pay off your debts.
Consolidate All Loans
You might have long-term, short-term, big or small loans. Remember, different categories of loans come with diverse terms and conditions. There are also high chances of missing EMI payments when you have multiple loans. The solution is that if you have taken all your loans from a single bank, talk to the bank representative and ask for the option of loan consolidation. The facility will assimilate all your loans and turn them into one or two.
Managing two loans is easier than multiple loans. It might also reduce the EMI size
because loan interest varies according to size. E.g., the interest rate of a
personal loan is higher than the home loan. Similarly, bigger loans have a higher rate of interest. The loan consolidation facility will help you get a fixed interest rate and eventually bring down the average.
Pay EMI On Time
It doesn’t matter if you have one or multiple loans, the key is always to pay the EMI of each of them on time. Repercussions of paying EMI late will be the same always, i.e., negative credit score. Thus, do not try taking a new loan to pay dues. The act will put you in a debt trap again.
Finish Loan with Higher Interest Rate
You must first pay off the loan with high interest. Salaried people get increments in salary every year, even if it is small. Instead of spending this extra money on unwanted things, use it to pay off your loan. Pay extra to reduce the principal amount, and you will get rid of your debt sooner. An effective loan plan means finishing the loan with a higher interest rate, short tenure and zero repayment charge first. The planning of finance this way would reduce EMI significantly and help you manage the rest of the loans.
