Nowadays, it is quite common for people to avail multiple credit facilities within the family. As a matter of fact, there are quite a number of families that have a home loan running simultaneously with a car or a vehicle loan, and if needed they avail a personal loan for any emergency or leisure. Most of the home and auto-mobile loans are secured while the personal loan is unsecured. With all these loan accounts running at the same time, at times it gets tricky to handle the EMIs with added expenses for the month. One needs to have a clear plan and a strict execution in order to stay within the line and do not end up defaulting on any of the payments.
Personal loans attract a higher rate of interest as they are unsecured, carry an additional risk for the lender, and to keep the borrowers gripped, they come with a flexible repayment tenure. Most of the personal loans are considered to be an alternative to a credit card as they offer a lower rate of interest and a flexibility while repaying the amount. As a result, the market today is filled with multitude of lenders offering instant & easy personal loans at competitive rates, enabling aspiring borrowers to get access to funds in no time.
For all those who are managing multiple loan accounts and find themselves submerged in a pool of debt with no respite, we have come up with a few tips that will help in managing those EMIs and wrap them up in an efficient way. With potent management, one can easily prevent themselves from this vicious cycle of debt and eventually coming out of it.
Let’s discuss these proven tips to manage multiple credit facilities:
1. Pay your loan EMIs prior to credit card outstanding bill payment
In a first, it is highly advised that one pays the monthly repayment amount due on a personal loan before paying off the credit card bill. The reason for doing so is that the default on a personal loan repayment impacts a credit score more than it does when one defaults or delay the credit card bill payment. As such, when an individual defaults on a personal loan repayment, it is considered as a severe act and can reduce the credit score by approximately 50 points, which is quite heavy. With multiple loan or credit accounts, there is a possibility of missing out or falling short of funds to manage payments within the stipulated time frame, hence it is advised to prioritize the monthly repayments accordingly.
2. Avoid accumulating additional credit card debt
The on ground importance of keeping this in check can not be understated as compared to the previous one. If a person continues to accumulate additional credit card debt without clearing the existing one with multiple loan accounts, then there might be severe consequences in terms of both credit score and interest burden. In general, credit card interest rates hover at around 40% per annum, and in case of continued accumulation, more debt would mean additional interest burden and higher repayment amount, leaving an individual in a debt trap and no money in their pocket.
3. Plan accordingly and fore-close the debt with highest interest rate
An option of going for a fore-closure will majorly depend on the nature & number of credit facilities that one has availed. A pre-closure comes with a cost of itself, if there are two or more accounts running simultaneously, one needs to pay attention on the cost of prepayment on all accounts. The focus should be on account where the interest rate is the highest and the cost of prepayment is higher as compared to the others. In between managing loan accounts and the credit card outstanding, one must work on closing the loan accounts first, followed by the credit card debt as the loan pre-closure can provide a significant boost in the credit score.
4. Plan a debt-consolidation or a loan balance transfer
In addition to the priority based planning, the most economic way to clear all existing debt is via a full-proof debt-consolidation plan, by doing so one can direct all small debt accounts within one and start paying a single EMI as repayment. One has to get in touch with their existing lender with whom they have the largest credit facility, and ask for options to consolidate their existing debt into a single loan account. Most of the debt consolidation products on offer attract a relatively higher rate of interest and the feature is not available with almost all the banks, but only the bigger ones. A separate debt consolidation loan will have different eligibility constraints, which might include the employment stability, existing credit history and others.
5. Resist from availing additional small-ticket loans
Most of the times, under some influence or advise, most borrowers avail a small-ticket short term loan to pay-off their monthly repayment dues, instead of managing it out through their savings. If an individual is already burdened with multiple debts, then at first they should prioritize their existing debt repayment instead of adding more. In such cases, the debt must be kept to minimum, with rigorous repayment through savings and incentives. Applying for additional loans in such a situation might trigger a series of hard-enquiries which will impact the credit score.
