Trapped in debt? 6 smart ways to manage multiple loans

Managing a loan requires financial discipline. Any inconsistency in paying your debts can hurt your credit score, which could harm your financial health.

If you have multiple loans, you run a higher risk of making these mistakes. You must balance your NDEs with other wants and needs. You must repay your dues on time.

Here are some tips to keep in mind to effectively manage multiple loans.

Keep your debt manageable

First, all of your combined NDEs must be at a level where they cannot interfere with any other financial needs you have.

BankBazaar CEO Adhil Shetty says you can follow a rule of thumb. “For example, no more than 40 percent of your disposable income should be spent on your NDEs,” Shetty says. “It’s also subjective. For example, if your income is Rs 30,000, paying 40% of it would strain your ability to manage other expenses. But if your income is Rs 200,000 and you have dependents or significant liabilities, you may be able to repay even Rs 100,000 as an EMI. It’s about finding the balance.”

Keep an eye on your expenses

It would be best if you kept a strict eye on your expenses so that you have the dedicated funds needed to pay off your debts. Shetty says, “Make a list of expenses and prioritize them. For example, you can keep priority expenses like electricity bills, school fees, etc., at the top and keep less necessary expenses at the bottom. Depending on your budget, try to cover your high-priority expenses first and avoid low-priority expenses. This way you can save a lot of money. You can use the money saved to prepay your loan.

Consolidation of loans

The chances of missing EMIs when handling multiple loans are high. Your loan portfolio may include short, medium and long-term borrowings, and the interest rate may also vary accordingly. Maintaining multiple IMEs can put a strain on your financial strength. Thus, you can choose to consolidate your multiple loans into one or two loans. You can close existing loans such as personal loans, car loans, credit card loans, etc., using the funds raised through a single large loan such as a supplementary home loan or a title-based loan. Loan consolidation can help you save interest, extend repayment terms, and improve your long-term credit score.

Repay your loans on time

Whether you fail to repay one or more loans, the immediate repercussions are generally the same, that is, your credit rating will be negatively affected. So if you have multiple loans, try to repay all EMI loans on time. “Avoid taking out a new loan to repay the existing one; this can lead you into a debt trap. If you’re having trouble repaying multiple EMIs simultaneously, you can ask your lender to extend the repayment term to reduce the size of the EMI,” suggests Shetty.

Prepay higher interest loans

People get a raise every year in their salary/income. This increase is often used to spend on non-essential things or to buy expensive things. If you make a habit of using your increased income to prepay some of your existing loans, it can help you close out your loans well before they expire. Prefer to close these loans first, which carry a higher interest rate than other loans.

Make an effective debt repayment plan

It is advisable to repay loans with higher interest first. Pay off your debts with a higher interest rate, shorter repayment term, and no prepayment charges. It would help if you tried to close them earlier than loans with lower interest rates and longer repayment terms. If you can close some of your high interest loans before the end of the term, it can help you reduce your EMI load and focus more effectively on big budget loans.

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