9 smart ways to manage your personal loan EMIs without stress

Paying your personal loan EMIs on time is important. If you don’t do that, your credit score will take a hit and getting new loans in future will be difficult. In this article, we will look at some of the steps you can take to manage your personal loan EMIs effectively. So, let us get started.

1. Choose an EMI amount which is neither too high nor too low: At the time of taking a personal loan, choose an EMI amount that is smooth on your pocket. Choosing a lower EMI will mean the loan will go on for a longer duration than it ideally should. It will result in a higher interest amount. On the other hand, choosing a higher EMI may strain your cash outflows. You may have to cut expenses elsewhere to make provision for the higher EMI amount. Hence, decide the optimum EMI amount and opt for it at the time of taking the personal loan.

2. Set up automatic payments for EMIs: Once you get the personal loan, set up automatic payment for the EMIs. It will ensure the EMI is auto-debited from your savings bank account on the scheduled date. Most banks these days, anyway, insist on an auto-debit facility. The automatic EMI payments eliminate the risk of missing or delaying EMI payments. Automatic payments for EMIs benefit you as well as the bank.

Make sure the savings bank account has sufficient balance to pay the EMI. With automatic payments, you will not need to track the EMI payment date every month. Thus, it is convenient and provides the much-needed peace of mind.

3. Create a monthly budget: You must always make a monthly budget, regardless of whether you have taken a personal loan or any other loan. The monthly budget gives you clarity on the monthly cash inflows, which you can allocate towards your monthly expenses.

With the monthly budgeting process, you will know the surplus amount left after providing for all the monthly expenses. You can then check whether the surplus amount is adequate to pay the personal loan EMI. If yes, you can proceed with the personal loan with the specified EMI. If the surplus amount is lower, you can take a personal loan with a longer tenure, resulting in a lower EMI that matches with the monthly surplus.

4. Create and maintain an emergency fund: Along with monthly budgeting, you must follow the practice of maintaining an emergency fund. If you still don’t have an emergency fund, you must start building it immediately. An emergency fund can help tide over unexpected and unplanned financial emergencies. Depending on your profession, your company’s financial health, you can decide the amount to be maintained in the emergency fund.

Ideally, an emergency fund should be able to meet financial expenses for a 3 to 12-month period, depending on the above factors. In a particular month, due to some unexpected expenses, the monthly income may be inadequate to pay the personal loan EMI and some other monthly expenses.

During such times, the personal loan EMI and other expenses can be met by dipping into the emergency fund. However, you must try and replenish the emergency fund at the earliest, once the financial emergency is taken care of.

5. Make partial or full prepayment whenever you get a lumpsum amount: From time to time, you may get some lumpsum cash inflows. These can include an annual bonus from the employer, performance incentives, maturity amount from existing investments, winning a lucky draw/contest, etc.

You may use a part or the entire amount to make a partial or full prepayment of the personal loan. However, there may be a fee on the partial repayment or the foreclosure of the personal loan. Check this charge with the bank before proceeding ahead with the partial or full prepayment.

6. Consider loan consolidation if you have multiple personal loans: If you have multiple personal loans or credit card payments going on at the same time, it may take time and effort to track all of them. In such a scenario, you may consolidate multiple loans into a single personal loan. With just one personal loan EMI to take care of, it will be easy to manage, without much time and effort on your part.

7. Go for a balance transfer or loan restructuring if it is beneficial: It may happen that your personal loan interest rate is higher than what other banks are offering in the market. In such a scenario, you may talk to your bank and negotiate for reducing the interest rate. If your bank doesn’t oblige, you may consider going for a personal loan balance transfer.

However, the bank offering the balance transfer may charge a processing fee, and the existing bank with whom you have the existing personal loan, may charge a foreclosure fee. Check your benefit after factoring these charges. If the benefits are decent after the charges, you may go for a personal loan balance transfer.

What if the existing EMI on the personal loan is higher than what you are comfortable with, considering your existing cash inflows? In such a case, you may approach your bank and request them for loan restructuring. The bank may increase the personal loan tenure, resulting in a lower EMI. The lower EMI will reduce the pressure on your monthly cash outflows.

8. Track your loan repayment progress: As part of the comprehensive financial planning process, you must regularly review your overall financial position, once every six months or yearly. As part of your net worth review, you must assess your assets and liabilities (loans). Track the overall personal loan repayment progress in terms of how many EMIs have been paid, how many are remaining, when is the personal loan getting over, etc. The loan repayment progress will help you plan your cash flows and overall personal finances.

9. Consult a financial expert: The above are some strategies to manage your personal loan EMIs effectively. However, if you are still facing challenges, you may consult a financial expert. You may seek the services of a loan counsellor, financial advisor or other expert to help you manage your personal finances and manage your personal loan EMIs effectively.

Manage personal loan EMIs effectively for peace of mind

Personal loans are an effective tool to manage various situations from overcoming financial emergencies to enjoying leisure vacations. However, once you take a personal loan for any purpose, you must ensure the EMIs are paid on time. Timely EMI payment ensures the credit score stays healthy and getting the next loan is smooth. Hence, you may adopt any of the above or other strategies to manage your personal loan EMIs effectively. When you do that, along with timely repayment, it will give you the much-needed peace of mind.

Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached at LinkedIn.