Handling EMIs smartly: Staying debt-free and financially fit

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Home loan, personal loan, education loan, car loan, it is quite common nowadays to have multiple loans in your name. Ease of borrowing, competitive interest rates and flexible repayment options have made this possible. However, while borrowing has become quite common, thanks to our growing needs, poor management of loans can make your finances spiral out of your control quite quickly. Here’s how you can manage multiple loans and still have money in hand.

High-interest loans first

Not all loans are the same. Credit card loans or personal loans have a greater rate of interest compared to study loans or home loans. Repay high-interest loans early so that you end up paying less interest in the long run. Prepay or make part payments on high-interest loans when there is excess money, if possible.

Debt-consolidate if required

If you’re juggling too many EMIs, consider debt consolidation. This involves taking a single loan (often at a lower interest rate) to repay multiple high-cost loans. It simplifies repayment and may reduce your monthly EMI load. But check the terms carefully — prepayment can have a fee or penalty, and it won’t make sense if that fee is more than the interest you’re saving if you close your loan early.

Use auto-debit and reminders

Every time you miss an EMI, your credit score takes a dent. So be sure to set up an auto-debit feature with your bank so that your EMIs are deducted automatically on the same day every month, and are not incumbent on you remembering to pay them each time. Make sure, of course, that you have enough balance on that day so your payments don't bounce. Maintain calendar reminders or use budgeting applications to keep track of payment dates and dues outstanding against you.

Maintain an emergency fund

Think about having at least 3-6 months of expenses in a liquid form readily available to you if you’re juggling multiple loans. This helps in case you need extra money to tide you over an emergency like loss of job, sickness, or other unexpected big expenses, and still have enough to pay your EMI.

Try not to take new loans whenever possible

New loans mean new EMIs. If your salary is not growing proportionately to the increase in your EMI, it might be best to avoid taking a loan unless absolutely necessary. It is not a good idea any way to use a loan or credit cards to service “wants” like a phone upgrade or foreign holiday.

By maintaining fiscal prudence, you can repay multiple loans quite easily — and also increase your credit-worthiness in the bargain.

FAQs

1. How much can I afford as EMI if I have more than one loan to pay back?

Try to keep your total EMI outgo limited to 40-50% of your take-home salary each month. Anything above that might be too heavy a burden.

2. Should I pay back an early-repayment low-interest loan?

No. Repay high-interest borrowings first if you can. You can repay low-interest loans (like mortgages) over a longer time period, as long as you're receiving tax relief on them.

3. Will having several loans destroy my credit score?

Not necessarily. As long as you're paying on time and not going to the limit, having more than one loan will enhance your score by showing payment habits.