What happens if I miss my EMI just once?

Missing EMI once can lead to late payment charges, penal interest and a drop in your credit score, which may affect future loan approvals. To minimise the impact, clear the overdue amount quickly and set up payment reminders or auto pay instructions to avoid such an occurrence in future.

How to Manage Multiple Loans Without Hurting Your Credit Score

Managing multiple loans responsibly does not necessarily hurt your credit score. The key is to create a structured repayment plan that reduces interest costs, prevents missed payments and maintains a healthy credit profile. Effective strategies include prioritising high-interest debt, consolidating loans and automating repayments. Read on to learn practical ways to manage multiple loans efficiently.

Managing multiple loans responsibly does not necessarily hurt your credit score. The key is to create a structured repayment plan...Read more

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Why Multiple Loans Are Difficult to Manage

Managing multiple loans can be challenging majorly due to a high Debt-to-Income (DTI) ratio. A DTI ratio refers to the percentage of your monthly income that goes towards repaying your EMIs and credit card bills. When a large portion of your monthly income goes towards debt repayments, then your disposable income reduces, making it harder to manage regular expenses and other financial obligations. This increases your risk of missing payments and defaults.

Ideally, your total debt repayments in a month should be within 50-60% of your monthly income. If your monthly debt repayments are exceeding this limit, then you need to try to improve it by taking steps such as paying off high-interest debt, consolidating it at a lower rate, etc. Having a lower DTI indicates better financial stability and improves your ability to easily manage multiple credit obligations.

Key Strategies to Manage Multiple Loans

Here is a comprehensive approach to managing multiple loan repayments:

1. Evaluate Your Overall Debt Situation

Get a clear picture of your debt obligations as this will help you determine your next steps towards managing your debt.
Further, identify high-cost debt such as credit card balances and personal loans. These loans usually carry high interest rates and can easily get out of hand over time if not managed properly.

2. Choose the Right Repayment Strategy

Once you understand your debt situation, create a repayment strategy based on your financial situation. When handling debt, there are two common repayment strategies that you can follow:

Debt Avalanche Method : In this method, you pay off the loan with the highest interest rate first while continuing minimum payments on other loans. Once the costliest loan is paid off, you can move on to repaying the next high-interest loan. This minimises total interest outgo and reduces your overall EMI burden faster.
Debt Snowball Method : In this method, you first pay off the loan with the smallest outstanding balance , irrespective of its interest rates. This approach reduces the number of loans faster and helps borrowers stay motivated and disciplined with repayments.

Pro tip: Use extra income or unexpected windfalls such as salary bonuses, incentives, maturity proceeds from investments or tax refunds to pay down your outstanding debt faster.

3. Consider Consolidating or Transferring Your Debt

If you are having a hard time managing multiple EMIs, you may consider:

Consolidating your debt: Take a personal loan at a lower interest rate to pay off multiple high-interest loans or credit card dues. Consolidating your debt at a lower rate will reduce your EMIs, making debt repayment easier to manage.
Transferring credit card balance: Alternatively, you can transfer high-interest credit card debt to a credit card offering a low or 0% introductory interest rate through a balance transfer facility. This can reduce your interest burden and make repayment easier during the promotional offer. However, the interest-free period and repayment terms may vary from one card issuer to another.

4. Optimise Payment and Budgeting

To ensure EMIs payments on time, you can follow the following tips

Set up auto-pay to avoid late fees and penalties.
Set EMI due dates after your salary is credited to ensure there is sufficient money for repayment.
Avoid availing additional loans until the existing outstanding dues are under control.

5. Check Your Credit Report Regularly

Review your credit report regularly to identify errors or fraudulent activity at an early stage.
Contact lenders and bureaus immediately to correct any discrepancies.

Note: Earlier, lenders were required to update borrowers' credit information with credit bureaus every 15 days. However, from July 1, lenders must report credit data every 7 days. This means that if you take corrective steps to improve your credit score or fix inaccuracies, the changes can reflect in your credit report much faster. And delayed actions towards fixing your credit report will also lead to a quick decline in your credit scores across credit bureaus.

What Happens If You Don’t Manage Your Loans Efficiently?

While having multiple loans increases your debt burden, consistent on-time payments demonstrates financial discipline, which over time can improve your creditworthiness.

However, failing to manage multiple loans can harm your credit score, which further may:

limit your chances of availing new loans or credit cards in future.
affect your eligibility for pre-approved offers.
lead to availing loans at higher interest rates.

How to Protect Your Credit Score While Managing Multiple Loans

You can maintain a healthy credit score while servicing multiple loans by following these practices:

Make sure you pay your EMIs and credit bills by their due dates.
Avoid unnecessary making new loan/credit card applications, at least until your current dues are manageable.
Make a monthly budget and stick to it to control unnecessary expenditures and manage your current repayments.
Avoid using your credit card for routine day-to-day or even the smallest of expenses to keep your credit utilisation low, especially if you already have high outstanding balances.

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FAQs

How do I reduce the overall interest burden on multiple loans?

To reduce the interest burden, paying off higher-interest-rate loans first, consider consolidating multiple loans into a lower-interest rate loan or transfer your outstanding credit card dues to cards offering low or 0% interest offers.

Will applying for several loans at once hurt my credit profile?

Yes, applying for multiple loans at once can hurt your credit profile. Each application triggers a hard inquiry that may temporarily lower your credit score and multiple such enquiries can also signal higher credit risk to lenders, increasing the chances of rejection.

How many loans can I have at the same time in India?

There is no fixed limit set by the RBI on the number of loans you can have at once. However, lenders typically assess your debt-to-income (DTI) ratio, which is the percentage of your monthly income used to repay debts. In most cases, lenders prefer this ratio to be within 50-60%. If your DTI is within this range, you are more likely to be eligible for additional loans or new credit.

How can I improve my credit score while repaying existing loans?

Repaying EMIs by their due dates consistently can gradually improve your credit score. Keeping your credit utilisation low and avoiding new loan or credit card applications can further strengthen your credit profile.

Can I avail a personal loan to close my credit card dues?

Yes, you can take a personal loan to pay off your credit card dues, provided . This is often beneficial because personal loan interest rates (starting from around 9.98% p.a.) are usually much lower than credit card interest rates, which can range between 24%–45% annually.

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