Repaying a loan may not be as difficult as it looks. But what if you have multiple loans? This means that you must have enough financial prowess to repay the added debt that you have incurred and must get rid of in time to ensure a good credit score. It requires considerable financial discipline to be able to repay more than one loan, let alone manage them, without hurting your savings or wrecking your financial goals in the long run. This is because multiple loans translate to repayment through multiple equated monthly instalments (EMIs) while also ensuring enough is left to pay off your daily utilities.
The following tips may come in handy if you are someone constantly juggling multiple loans while trying to get rid of them soon.
Do not incur too much debt
You must strive to keep your debt in a way that you can manage, and not something that destroys your peace of mind. While seeking multiple loans, ensure that the combined value of your EMIs must not reach a limit that they become heavy on your wallet. Most personal finance experts advise people against using more than 40 per cent of their earnings to pay off their loan EMIs. However, this ratio is subject to how much you earn and the burden of other responsibilities that you cannot escape. The idea is to find a balance that allows you to limit your debt to a manageable level.
Watch out for unwanted expenses
Every time you want to spend on something that you can do without, remember that you have a loan awaiting to be repaid. Though you may have funds dedicated to repaying your debt, it would help if you could put in some extra effort and money to prepay your debt. After you have paid off your high-priority expenses including bills and education fees, set aside the money to get rid of your lingering debts quickly. Make sure to relegate your unnecessary expenses to the bottom of the list of your shopping list. Used the saved money to free yourself of debt.
Consolidate your loans
What if you remember to repay one loan but miss on paying the EMIs of other loans that you may have incurred? If this thought has been bugging you lately, the best way out of this would be to classify loans according to the tenure and the interest rates charged on them. This way you will find your loan portfolio is divided into short-term, medium-term and long-term borrowings. Now club the high-interest loans to check the amount you repay through EMIs. Next check, if you can take a new loan equal to their combined loan amount at a lower interest rate. If yes, use the new loan amount to repay these high-interest loans so that you now have a consolidated loan amount that you have to pay off. This way you can use a single top-up loan to repay your small and big loans instead of constantly juggling between multiple loans that consume both your time and money. Also, loan consolidation can help you save on the interest amount while allowing you the benefit of a longer repayment tenure in addition to improving your credit score in the future.
Repay your loans on time
Remember to set aside everything before you have paid off your loans. It does not matter if you are repaying one or many loans together. Letting your loans linger or default on your loan payment can take a serious hit on your credit score. So next time you have a loan(s) in your name, ensure that they are all repaid on time or prepaid for a better credit score outcome. If at all you are finding it difficult to repay your loan on time, you can request the lender to extend your repayment tenure by reducing the size of your EMIs.
Repay your high-interest loans first
Those with multiple loans left to repay must check which of these loans cost more than the others. Accordingly, segregate the high-interest loans to repay them before you use the money to pay off other expenses. If you have received an increment or appraisal recently, use the money to repay your high-interest loans before you decide to close other liabilities.
Have a plan in place
Are you sure that you have adopted the right way to repay your loans? If you are still struggling to repay your loans, you must relook at your strategy of debt repayment that allows you to benefit from lower interest rates, shorter repayment tenure and nominal prepayment charges. A loan means a liability that can be rid of with an effective plan in place.