How Can You Effectively Manage Multiple Loans?

A Personal Loan can be a valuable resource for any expenses, from emergencies to debt consolidation. However, you may find yourself stuck in multiple financial obligations if you opt for multiple loans. The good news is that you can keep your debt from spinning out of control with good money management skills. Let's look at the 6 tips to manage multiple loans and things to consider before dealing with multiple loans. Keep reading!

6 Tips to Manage Multiple Loans Like a Pro

Below are the 6 tips for managing multiple loans:

1. Maintain a Balance
First, you must ensure that all your EMIs are at a level that will not jeopardise your other financial obligations. The thumb rule is to not allot more than 40% of your disposable income to your EMIs. Yet, maintaining balance is of the essence here.

2. Make Timely Repayments
Whether you default on a single loan or a series of loans, the immediate consequences are usually the same: your credit score will drop. So, if you have multiple loans, try to pay off all of your EMIs on schedule. Defaults on personal loans can have a significant impact on your credit score, lowering it by nearly 50 points at a time.

3. Opt for Debt Consolidation
Obtaining a debt consolidation loan and consolidating all debts into a single can be an ideal strategy to eliminate debt from different sources. However, a debt consolidation loan is not offered by every lender, and you must have an excellent repayment history and a high credit score to qualify for such a loan.

4. Pre-close One Loan at a Time
Pre-closing loans can help reduce the clutter. The number of loans you have will determine how easily you can accomplish this. If you just have two, you may be able to close one of your loan accounts in a few months, but if you have three or more, there may be too many loans to pre-close. While you focus on pre-closing, ensure that you pre-close the loan account with the highest interest rate first and prioritise your loan accounts over your credit card accounts.

5. Keep a Close Eye on Your Expenses
It is best to watch where and how much you are spending so you can set aside the amount needed to pay off your debts. Start by making a list of your expenses and categorising them as essential and non-essential. House rent, utility bills, education fees, and so on are all considered essential expenses or “needs”. Shopping for clothes, on the other hand, is a “want.” Try to meet your top-priority expenses first and avoid low-priority expenses. Not only can you save a lot of money this way, but you can also pay off your loans sooner.

6. Avoid Additional Credit Card Debt
If you continue to add to your credit card debt despite having multiple loan accounts, you're only adding to your financial burden. Credit card interest rates are typically around 35-40% p.a. As your credit card debt grows, you will be forced to make greater minimum payments, leaving you with very little cash in your pocket for the month.

Also Read: Decoding Personal Loan Cancellations 

6 Things to Consider Before Juggling Multiple Personal Loans

Here are the things you must consider:

1. Check Your Repayment Capacity
It's essential for you to evaluate your repayment capacity before opting for multiple Personal Loan. Check whether you can manage the repayment of multiple loans with your monthly income and still save enough for your monthly expenses. Lenders will find you less creditworthy if more than half of your income is directed towards paying EMIs since that enhances the risk of default. Less than 40% of your income should ideally be used to pay off a debt of any kind.

2. Apply for Pre-closure
If your lender doesn’t levy a prepayment penalty, you should aim for the pre-closure of a Personal Loan. Depending on the number of loans you have, try to pay off at least one or two loans early. If you find it difficult to retire multiple debts, at least pre-close the loan with the highest interest rate. The financial savings made due to the early closure of this debt can then be directed towards paying off the other loans.

3. Keep an Eye on DTI
Debt-to-income ratio (DTI) is a very important parameter when it comes to availing of loans. A high DTI suggests that most of the income earned is directed towards servicing active debts. Conversely, a low DTI reflects smaller debt payments in comparison to income. Banks and NBFCs pay a lot of attention to DTI when it comes to sanctioning loans. Thus, you need to make sure that your DTI is low, especially when you plan to avail of multiple personal loans. Also, multiple loans can increase your DTI, which could result in higher interest rates on consecutive loans.

4. Provide Additional Documents
Some lenders may ask you for additional documentation if you apply for multiple personal loans with them. This is just to ensure there are no changes in status since the time you applied for a loan with them. It also ensures that you still have the capability to repay the loan.

5. Align your EMIs with Salary Hikes
When you’re juggling multiple personal loans and their payments, a good rule of thumb is to increase your EMIs with every salary hike you receive. This will enforce fiscal prudence and discipline. It will also ensure that any additional income that you earn has an assigned purpose. If you follow this diligently, you will, in all probability, repay most of your loans on or before time.

6. Set-up Autopay
When you have several personal loans, it might be difficult to keep a track of all the payments. Invariably, you may end up missing a deadline for paying your EMIs, which is not a very comfortable situation to be in. It will not only lead to late fees but also damage your credit score. One way to avoid being in this situation is to set up automatic payments through your bank. If your bank account has the required balance, you will never default on your payments.

Also Read: Top 9 Reasons for Rejection of your Personal Loan 

To Conclude

While having multiple loans simultaneously is not a bad thing and can sometimes be unavoidable, some strategies can help manage finances better. Pay off loans that have a higher interest rate, a shorter repayment period, and no prepayment charges first, and then move on to loans with low-interest rates and longer payback terms; it would be beneficial to try to end them early.
You can minimise your EMI load and focus on the big loans more efficiently if you can close some of your high-interest loans before their term ends. You can live a debt-free life with a little effort and these strategies for managing multiple loans. If you are considering debt consolidation with a Personal Loan, Poonawalla Fincorp offers hassle-free and speedy disbursements.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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