Personal loans may come as an easy option to fulfill immediate financial needs such as the wedding of a son/daughter, medical disbursals, etc., but paying the loan debt can become a niggling situation for the borrower, esp. if the amount is huge. If you also find it difficult to repay your loans, you must follow the listed below strategies to manage your debt situation without stressing your wallet.
- Pay costly loans first: Personal loans have higher interest rates, so it is good to pay off this first to reduce your interest burden going forward. Start by paying the maximum amount you can afford without jeopardizing the repayment of the other loans. Once you have cleared the most expensive loan debt, start paying the next big loan.
- Pay higher EMI’s with increased income: Instead of paying fixed EMI’s every month till retirement, it is good to pay higher EMI’s whenever there is extra income flowing in to close the personal loan debt as soon as possible. Do not splurge on the latest mobile phone or newest range of the car. Use the money to pay down your personal debt aggressively. Extra cash flows such as maturity incomes from life insurance policies and income tax refunds can be used to pay off these loans.
- Don’t forget to save: It is good to pay higher EMI’s on a regular basis even though your personal loan interest rate may be low. But don’t forget to save some amount for future as well even when you are dealing with ill fate such as unemployment, sudden hospitalization, increased medical expenses, etc.
- Use current investments to repay debt: If your personal loan interest rate has increased significantly, you can liquidate your current investments to make the payment. You can borrow money from your life insurance policy or pay off your personal loan debt using your PPF balance. The PPF allows the depositor to take a loan against the balance from the third financial year of investment, and the same can be repaid within three years. The maximum loan one can take from PPF is up to 25% of the balance at the end of the previous year.
- Cut down expense on dinners and movies: When it comes to paying off the loan debt on time, making little amendments in your life can work wonders in keeping your finances in check. While we have so far discussed different ways with which you can reduce your loan burden, you also need to make some changes in your lifestyle to save money and pay higher EMIs. By making lifestyle changes we mean cutting down expenses on movie shows, dinner dates, weekend getaways, excess shopping, etc. You can also avoid using a credit card and instead make purchases with cash. This will automatically help you save big and pay the loan without much hassle. This change in lifestyle is needed until the time all the loan debts are paid.
- Lower your spending limit: You can also talk to your credit card company representative to lower down you spending limit. You must also avoid taking new loans until the time you repay the previous loan. If possible, try to automatically debit your repayment dues to your bank account. In this way, the loan amount will be deducted automatically on the due date and you will not be left with extra money to spend unnecessarily. Remember, making late payment impacts your credit score negatively and you are required to pay a late fee as well which means more money disbursal from your end.
- Get advice from debt counseling centers: If all the aforementioned ways fail to work in your favor, approach a debt counseling center. These centers offer free advice and effective ways to help borrowers pay off the personal loan debt.
These are numerous ways to manage your personal loan interest burden. In addition to this, you can even liquidate your assets such as jewelry, property, etc. and pay the loan.