5 simple ways to reduce your loan burden

People take loans for their various needs – to buy a new house, car, start or expand their business, pay for education, credit card overdues, bills, and almost everything they want to purchase but are unable to pay cash for immediately. While this is beneficial, one must remember that it is also an added expense. Loans when not paid on time lead to horror stories where borrowers complain about exorbitant interest rates – specially in case of credit cards, never ending loan tenures and harassment by lenders on defaulting and missing the EMI.

To avoid this debt trap, below are five simple ways to manage your loans better and to reduce your EMI.

  1. Select a higher down payment at the time of purchase. A higher down payment will automatically result in less borrowing and relatively less EMI on your loan.

  2. Start analyzing and consolidating all your loans basis the outstanding, tenure and interest you are paying on each loan. Use the debt-snowball strategy to clear off your loans smallest amounts while paying the minimum payment on larger debts. This strategy is applied to repaying revolving credit such as credit cards.

  3. Rank all your loans basis the interest rate charged. Interest rates significantly increases the amount you need to pay back. Use the stack method, and start repaying the loans with higher interest rates first followed by ones with lower interest rates.

  4. Take a top-up loan on your existing home loan or personal loan to pay off the credit card loan for which you are paying a very high interest rate. This approach will work in a case wherein interest on your new loan is lower than the interest charged on the existing loan.

  5. Compound your results by adding the EMI amount you saved by pre-paying one loan to the pool to pre-pay the remaining loan. Your annual bonus, increments can all be added to this pool which will help you repay your next loan even faster and so on until you are completely debt free.


25 Jan 2020