10 smart strategies to manage the repayment of multiple personal loans

Sometimes things don’t work as smoothly as expected. Multiple financial emergencies may follow one after the other.

For example, a person may already have a couple of personal loans running. The person may need to take additional personal loans due to emergencies like family medical emergencies, urgent house repairs, etc. Before a person realises, they may be getting into or may already be in a debt trap. They may find it difficult to repay the multiple personal loan EMIs along with managing the other household expenses.

Strategies to manage the repayment of multiple personal loans

At times, debt management can be like a ticking time bomb. You need to diffuse it before it blows up. Some smart strategies for managing multiple personal loans include the following.

Automate EMI payments

Managing the repayment of multiple personal loans can take time and effort on the part of the borrower. You may need to keep track of multiple EMI payment dates spread across the month. So, you must automate EMI payments, if not already done. The auto debit facility ensures you don’t need to track and pay each EMI manually.

Talk to the bank officials and if possible, keep the same date for all EMIs. It ensures that you need to track only one date in a month. Also, if possible, keep the EMI payment date a couple of days after the salary date. Keeping the EMI payment date close after the salary date ensures that your EMI payments are made before you use the money for your other expenses.

Evaluate your overall debt position

Once you have automated the EMIs for all personal loans, the next step is to prepare a clear picture of the overall debt position. In an Excel sheet, list down the details of each personal loan. For example, list details such as the bank name, loan account number, loan amount, interest rate, tenure, number of EMIs paid, the outstanding amount, the number of EMIs remaining, etc.

The consolidated Excel sheet, which contains details of all personal loans, provides a clear picture of the total outstanding amount, along with individual loan details such as outstanding balance, number of EMIs remaining, interest rate, etc.

The consolidated Excel sheet will help you create a repayment plan and work on it till you become debt-free.

Make a budget with a repayment plan

You have created a consolidated Excel sheet with a clear picture of your overall debt situation. The next step is to make a repayment plan. Start by making a monthly budget. The monthly budget will provide you with an idea of the additional free cash flow you have for debt repayment after considering your monthly expenses and EMI payments. A budget can help you identify certain expenses that you can avoid to make more free cash flows available that can be used for debt repayment.

Debt consolidation

Once you make a consolidated Excel sheet with the details of all personal loans, check how you can consolidate your overall debt. Check whether multiple smaller personal loans can be consolidated into a single personal loan. A single loan repayment is easier to manage than multiple loans.

Evaluate debt repayment strategies that suit you

There are various debt repayment strategies you can consider, depending on what suits you. For example, you can use your free cash flows to prepay or foreclose the loan with the lowest outstanding amount. Once you have done that, target the next loan with the lowest outstanding amount. Every single loan that you close is a victory and a step towards becoming debt-free.

The other strategy is to target the prepayment or foreclosure of the loan with the highest interest rate. When you do that, you are reducing your interest burden. Once the loan with the highest interest rate is fully repaid, target the next loan with the highest interest rate.

Contact your bank to discuss debt restructuring options

Visit the bank branch and consult with the bank officials to discuss the various debt restructuring options that they can offer you. Check whether multiple loans can be consolidated into a single loan, making it easy to manage.

Check with the bank for options such as a reduction in the interest rate or an increase in the loan tenure, so that the EMI amount comes down.

Consider a cheaper balance transfer

In the earlier section, we saw how you can discuss the various debt restructuring options with your bank. If your existing bank is not providing you with any options, you can approach other banks for cheaper balance transfer options.

A balance transfer (BT) allows you to transfer your personal loan from one bank to another bank. The bank to which you are transferring the loan pays the outstanding amount of your loan to the bank from which you are transferring. A BT helps you save interest costs when the bank where the loan is being transferred offers it at a lower interest rate. A BT may involve payment of foreclosure charges to the bank with whom the loan is being closed and processing fees to the bank where the loan is being transferred.

Direct lumpsum payments towards debt repayment

From time to time, you may receive lumpsum amounts like Diwali bonus, annual performance bonus, variable pay, performance incentives on achieving various targets, etc., from your employer. You can use these lumpsum amounts, fully or partially, to prepay or foreclose your personal loan(s).

With the lumpsum amount, you can close a personal loan with the lowest outstanding or the highest interest rate, depending on what suits you.

Convert credit card outstanding into EMIs

If you carry forward the credit card outstanding to the next billing cycle, you will incur high interest charges on it. Banks usually charge an interest rate of up to 3.5% per month, or 42% per annum on credit card outstanding carried forward.

Hence, if you are unable to pay the entire outstanding, you must convert it into EMIs at a lower interest rate.

Consult a professional debt counsellor

If you are finding it challenging to manage the repayment of multiple personal loans, it is better to consult an expert who can help you do that. A professional debt counsellor can help you prepare a debt repayment plan, implement it, review the progress regularly, and handhold you, till you become debt-free.

With smart strategies, you can become debt-free

Certain circumstances may have necessitated taking multiple personal loans. Handling the repayment of these loans may look overwhelming. However, you need not get bogged down with the debt load. With some start strategies, you create a repayment plan, implement it, make regular repayments, and eventually become debt-free.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.

For all personal finance updates, visit here.

Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.