Borrowers must manage their loans right from the beginning so that they can repay the same without facing any inconvenience. Such a concern mostly arises from the fact that missing out even one single loan EMI can negatively affect one’s credit report. In turn, it erodes their creditworthiness and their chances of securing financial assistance in future.
In case, you are struggling to manage your debt effectively, you should adopt strategies recommended by financial experts to make the process less cumbersome.
Tips to manage debt burden
Follow these ways to manage your debt burden easily –
Tip 1: Pick a suitable tenor combination
The selection of a suitable tenor is probably one of the most crucial decisions when it comes to availing a loan. Existing loan borrowers can negotiate with their lender to shorten or increase their loan tenor accordingly. Notably, a longer tenor means borrowers have to pay a lower EMI when compared to the EMI paid over a shorter tenor.
However, a longer tenor may prove disadvantageous in more than one way. Firstly, a longer tenor attracts more interest, in turn, increasing the overall cost of the loan. Secondly, it stretches the loan burden across a long period and often makes the process tedious for borrowers.
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Tip 2: Negotiate a lower rate of interest
Another strategy that existing borrowers can adopt to avail better rates for their personal loan is through negotiation. Often, borrowers with a clean credit history and a stable source of income are more likely to secure a lower rate of interest from their existing borrowers. Furthermore, those who have paid their EMIs diligently and possess a high CIBIL score of over 750 may also avail better terms of repayment. Such negotiation may prove useful for you to manage your debt effectively.
Tip 3: Prioritise loan repayment
The best way to manage debt is to prioritize them. The loan with the highest rate of interest should be prioritized the most. In fact, borrowers will be able to lower their loan burden significantly if they decide to pay the highest loan amount first. By making a higher payment towards the loan installment, they will be able to save significantly on the accompanying interest burden. Subsequently, they should move on to the next loan with a high-interest rate and try to pay it off and jumpstart the debt avalanche technique.
Tip 4: Refinance or consolidate
Borrowers also have the option to consolidate their multiple loans into one single loan at a lower rate of interest and better repayment terms. Such a strategy will help them to keep track of the EMI better and enable them to pay off their debt better. However, before moving ahead with a personal loan, refinancing borrowers should be cautious if they decide to extend their tenor. Like discussed, extending tenor often leads to paying more interest in the long run and makes the loan more expensive.
Also, opt for leading financial institutions like Bajaj Finserv who facilitate debt consolidation at an affordable rate of interest.
The NBFC also provides lucrative opportunities like pre-approved offers to their customers and enhances their overall experience of availing a loan. Typically, such offers accompany several financial products like personal loans and business loans. Check your pre-approved offer in a few simple steps by sharing your name and contact number.
While at it, individuals should find out the important documents required while applying for a personal loan. It will help them to streamline the application process more effectively.
Tip 5: Pay higher EMI whenever possible
Individuals should take advantage of an increase in their income and use the opportunity to lower their existing debt burden. Whenever there is a surplus of cash, borrowers should use it to pay a higher EMI than the minimum threshold.
It will help to repay the loan amount faster and more conveniently. Nevertheless, borrowers should find out the essential personal loan charges to find out whether paying a higher EMI will attract additional charges or not.
Tip 6: Factor in tax benefits on loan
To further manage your debt effectively, you can claim applicable tax exemptions on your loan. For instance, under Section 80C of IT Act, if individuals avail a personal loan for home improvement, they are entitled to avail a tax deduction of maximum Rs.1.5 lakh in an accounting year. Similarly, borrowers who have availed other loans should find out the tax exemptions they are eligible for and claim them accordingly.
To manage your debt effectively, you should be cautious against accumulating additional debt. Also, try to focus on implementing cost-cutting techniques to bring down non essential expenses so that you can repay your current debt without straining your finances.