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| December 8, 2021


Financial assistance has a huge impact on your purchase power. Not only does it help enhance your buying capacity but also allows you to make flexible payments over a certain period of time without burdening your pocket. Borrowing can help an individual with higher education, buying a house, marriage, business, and other financial goals. However, all this is subject to the repayment of the loan amount within the set tenure. Even a slight delay in due monthly payment can result in a penalty fee along with other additional charges. 

While small debts like loans for credit card repayment are easy to manage, long-term loans like home or education loans can be challenging. But this does not mean that loan repayment is rocket science. A borrower can effectively manage the same after gaining a thorough understanding of its complexities and being equipped with the right ways of management and settlement.

Individuals from all walks of life have been in debt and successfully managed to repay the same, with or without complexities. To help eliminate challenges for future borrowers, this article talks about the 10 smart ways to get independence from the neverending debt trap.

1. Take stock of your debts

Pen down all the loans along with their details like EMIs, interest rate, and tenure to understand exactly how much you owe and what is your current repayment capacity. This process may sound tedious but will help you determine your financial situation. This list should include all your loans that require settlement like your credit card, home loan, vehicle loan, education loan, and any other type of borrowing. Some people also take additional loans for credit card repayment; count that in the list as well.

Once you have this list at hand, try recognizing the cause(s) that led to a delay in repayment. For instance, you may have lost your job, or have had pay cuts, exigencies at home and so on. All this information will help you analyze your situation and take the next step towards getting out of the debt trap.

2. Get disciplined with your repayment

We often tend to ignore or miss out on the due date for the EMIs against the borrowed loan amount. Such instances especially happen in the case of short-term loans like credit card debt. However, such practices are not encouraged by financial experts and consultants who help you manage your debts in an effective manner. They further state that committing to pay loans needs financial discipline to be able to ensure timely repayment month on month that leads to quick loan closure.

We all generally shy away from auto repayments that financial institutions insist upon while lending. However, it is an efficient way to get out of a debt trap. Also, try making the full payment of the due amount instead of the minimum or partial amount to get rid of it at once and move on to the next due EMI.

3. Prioritize your debts

Another smart way to ensure efficient and timely loan settlement is to prioritize your debts ranging from high to minimal loss bearing. A well-planned priority list will help you save time and money as well as ensure a quick loan payoff. There are four ways to strategically prioritize payoffs and manage debts - Pay off loans with the highest rate of interest, Pay off the smallest amount first, Pay off the largest amount first, Consolidate the debt to be able to pay off at once.

Some borrowers generally prefer to get rid of small amounts like credit card payments or utility bills first and then move on to paying long-term loans with bigger amounts like a home loan, while some do the opposite. However, it all depends on the borrower on how to prioritize, the only requirement here is efficiency.

4. Plan your repayment

Next on the list is to plan your repayment to be able to fill the gaps and ensure quick closure of your loan account. Start by taking stock of your monthly budget and comparing it with your dues. If it is enough for you to conveniently pay your debts then nothing to worry about but if it is the opposite, you might have to look for additional income sources. Besides, you can also slightly cut your monthly expenses and utilize the saved amount to clear your debts.

However, all this will require strategic planning and discipline. Hence, you can try taking help from family members with efficient fund management or consult a financial advisor to guide you better.

5. Opt for debt consolidation

If you have several different loan accounts, the best is to opt for debt consolidation. This way, you take a low-cost personal loan to pay off all your existing debts. On consolidation of loans, you are combining multiple loan accounts into one along with their interest rate and EMIs, which makes it easier to manage and repay without any additional cost. Further, you can also research and find personal loan schemes with a low rate of interest, low EMIs and flexible payment tenure.  

It may be noted that there is no limitation on the type of loans you wish to consolidate as you are applying for an additional loan altogether to get rid of the existing ones.

6. Avoid additional loans

Avoid taking any additional loan or non-essential expenses when already saddled with considerable debt. Ideally, you should not exceed the 40% limit for your EMIs and credit card payments against the take-home salary. If that is happening then you should prioritize its quick repayment or bring it back to the 40% range instead of adding onto your debts. Not doing so may put you in certain difficulties, especially when you are running out of budget or have lost your job.

That being said, it is important to curb your non-essential spending unless your loans are fully paid off. After all, something is better than nothing.

7. Protect Yourself Against Economic Shocks

Economic and income shocks are inevitable, however, there are ways to help protect ourselves from them and ensure financial security. While there are several economic shocks that one needs to be aware of, what majorly impacts your loan payoff capacity are factors like pay cut and loss of employment. Both of these factors may lead to difficulty in meeting your regular expenses that include EMIs.

To protect oneself against such shocks or ensure financial stability when such instances take place, a person must have enough savings or assets. Besides, he or she can also have an emergency fund that can help sustain during difficult situations.

8. Opt for an insurance

Similar to economic and income shocks, unforeseen situations cannot be avoided. However, to protect oneself from the loss and damage in such situations, people opt for insurance schemes. A term insurance or loan protection plan in place will provide you with a cover against the applicable unforeseen situations like death, disease, damages, etc. This cover will ensure that your EMI repayment remains unaffected even when there is no income source.

Most financial institutions offer a loan protection plan to the borrowers. While it is completely their choice to opt for it or not, financial advisors recommend having one to eliminate risks and ensure financial security.

9. EMIs against income

The income of both salaried employees and self-employed individuals keep on increasing with time. This would allow you to make higher repayment, which, in turn, will result in quick closure of your loan account.

You can utilize your investment income, annual hikes, bonus, performance incentive and other additional incomes for prepayment. Be it a debt consolidation loan account, credit card payments, or other type of borrowings, you can keep on adding to your set monthly repayment amount as your income strengthens. However, do check the prepayment or foreclosure policies with the lender beforehand. While such facilities are normally charge-free, some may levy additional charges that you need to pay.

10. Always get the NOC

No Objection Certificate abbreviated as NOC is an important document that the lender issues to the borrower on successful completion of the loan repayment. It is, in fact, a proof essentially stating that the borrower has no outstanding dues towards the lender.

Most of the short term loans like credit cards do not require a NOC while long term loans like the ones for education or home may require the same to be further submitted to the authorities. Getting a NOC is like the final step towards achieving a clean credit score. Thus, ensure to obtain the same at the end of the loan tenure.

Gain a thorough understanding of these smart ways to break free from the debt trap and live a financially stable life.

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