Personal loans are used for individual and business needs. So, an effective loan management plan is critical to your financial health, given that expenses, emergency or otherwise, could arise even during the period of the equated monthly instalments (EMIs). For instance, you may want to go on a holiday, refurnish your home, pay children’s education fees, car loans, etc., which can put immense pressure on your budget. Hence, a repayment strategy is vital.

Here are some tips to help you repay your debt smoothly.

Budget

Compile a list of your monthly expenses and divide them into spending groups, such as grocery and other household bills, EMIs, education fees, and home and car loans, if any. Next, cut the expenditures wherever necessary. Then, decide on a maximum monthly cap for your expenses.

After this, allocate money to each spending bucket and save the rest. However, don’t forget to regularly review the monthly budget vis-à-vis your income. Some banks allow personal loan foreclosure after a certain period. So, explore those opportunities if you have the money. It will significantly reduce the interest component of the loan.

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Automatic Payments

Setting up an autopay facility from your bank savings account is a great approach to ensure your loan repayments are made on time every month. All lenders have this facility. Customers can log into their websites and navigate to the loan management area. Then, click the “payment option” button and select “autopay”. They must enter their loan account number and other relevant information for the bank to enable automated withdrawals. Choose the monthly EMI amount and the payment deadline (ideally a few days ahead to allow for sufficient funds).

Pay EMIs In Advance

Paying an additional amount besides the regular EMIs is a wise decision because it will reduce the outstanding principal, which, in turn, will reduce the annual interest outgo. So, making additional payments to the loan account will allow you to close the loan faster. Additionally, the repayment of the loan ahead of time will help improve your credit rating as well.

Refinancing

Refinancing can also help lower your loan burden. If you have a higher credit score, refinancing the loan shouldn’t be difficult. It will reduce the loan cost significantly. Refinancing allows you to take low-interest-rate loans from other lenders when rates drop to repay the original lender.

Pay Attention To Fine Print

Before signing a loan agreement, thoroughly review the terms and conditions, including the interest rates, repayment plan, costs, etc. Understanding these aspects will help manage debt efficiently and prevent unforeseen financial crises. So, pay attention to details like interest rate, origination fees, payback period, late payment and prepayment penalties, etc. Early repayment can save you money, but lenders may charge you a fee for early repayment or if closed before a defined period for such closures.