These days, it is quite common for people to take advantage of multiple credit facilities within the family. In fact, there are a number of families who have a home loan running at the same time as a car or car loan, and if necessary, they are provided with a personal loan for any emergency or hobby. Most home and auto loans are secured while the are unsecured. With all these loan accounts running at the same time, it sometimes becomes difficult to manage EMIs with additional expenses for the month. You need to have a clear plan and strict execution in order to stay within limits and not miss any of the payments.
Personal loans attract a higher interest rate because they are unsecured, carry additional risk for the lender, and to keep borrowers on their toes, they come with a flexible repayment term. Most personal loans are considered an alternative to a credit card as they offer a lower interest rate and flexibility in repaying the amount. As a result, the market today is filled with a host of lenders offering instant and easy personal loans at competitive rates, allowing aspiring borrowers to access funds in no time.
For anyone who manages multiple loan accounts and finds themselves immersed in a relentless mass of debt, we have offered some tips that will help you manage these IMEs and close them effectively. With powerful management, one can easily prevent oneself from this vicious cycle of debt and eventually get out of it.
Let’s discuss these proven tips for managing multiple credit facilities:
1. Pay your loan EMIs before your outstanding credit card bill is paid
As a first step, it is strongly advised to pay the monthly repayment amount due on a personal loan before paying the credit card bill. The reason for this is that defaulting on a personal loan has a greater impact on credit rating than defaulting or delaying credit card bill payment. Thus, when an individual defaults on the repayment of a personal loan, this is considered a serious act and can reduce the credit rating by around 50 points, which is quite heavy. With multiple loan or credit accounts, it is possible to run out or run out of funds to handle payments within the stipulated time frame, so it is advisable to prioritize monthly repayments accordingly.
2. Avoid accumulating additional debt on your credit card
The importance on the pitch of keeping this under control cannot be underestimated compared to the previous one. If a person continues to accumulate additional credit card debt without clearing the existing one with multiple loan accounts, it could have serious consequences in terms of credit score and interest charges. Typically, credit card interest rates hover around 40% per annum, and in the event of continued accumulation, increased debt would mean an additional interest charge and higher repayment amount, leaving an individual in a debt trap with no money in his pocket.
3. Plan accordingly and cancel the debt with the highest interest rate
An option to go for a foreclosure will mainly depend on the nature and number of credit facilities one has taken advantage of. A pre-closing has a cost in itself, if there are two or more accounts operating simultaneously, attention should be paid to the cost of prepayment on all accounts. Emphasis should be placed on the account where the interest rate is higher and the cost of prepayment is higher compared to others. Between managing loan accounts and outstanding, work on closing loan accounts first, followed by credit card debt, as pre-closing the loan can give a significant boost in rating credit.
4. Schedule a debt consolidation or loan balance transfer
In addition to priority-based planning, the most cost-effective way to clear all existing debt is to use a foolproof debt consolidation plan, by doing so, one can direct all small debt accounts into one. and start paying a single EMI in reimbursement. One should get in touch with their existing lender with whom they have the greatest credit facility and ask for options to consolidate their existing debt into one loan account. Most of the debt consolidation products offered attract a relatively higher interest rate and the feature is not available with almost all banks, only the biggest ones. A separate debt consolidation loan will have different eligibility constraints, which could include job stability, existing credit history and others.
5. Resist using extra small loans
Most of the time, under influence or guidance, most borrowers resort to a small, short-term loan to pay off their monthly repayments, instead of managing them from their savings. If a person is already burdened with multiple debts, they should prioritize paying off their existing debt first instead of adding more. In such cases, debt should be kept to a minimum, with rigorous repayment through savings and incentives. Applying for additional loans in such a situation could trigger a series of in-depth investigations which will impact the credit rating.
Posted: Friday 06 May 2022, 17:39 IST