How to Create a Repayment Strategy That Works – Smart Debt Plan

Manisha is a 33-year-old software engineer. She had an unpaid personal loan of ₹3.5 lakh, a credit card bill of ₹55,000, and an education loan of ₹1.2 lakh. She earns ₹92,000 per month.

She did some planning and cleared all her credit card dues within three months. Also, she closed her loan in 20 months, without ever defaulting. You must be wondering how she managed to do all this.

She followed a step-by-step repayment approach that was easy to maintain. If you are also in a similar position to Manisha, this blog will help you create your repayment strategy.

1. List Out All Your Loans In One Place

Before planning anything, you must get a clear idea of your total loan burden. You can look out for the following:

• Amount remaining
• EMI or minimum payment
• Rate of interest
• Time left to complete repayment
• Type of loan

Let’s look at an example of outstanding loans:

2. Decide Which Loan To Tackle First

You can approach your debt in two ways:

• High-interest first
• Low-balance first

In Manisha’s case, she cleared her credit card bill (36% interest) first, even though it wasn’t the largest.

3. Plan Your Monthly Budget With Repayments In Mind

It won’t be possible for you to repay your debt if your budget is out of balance. You must allocate your salary across three main areas:

• Extra repayments or savings
• Loan EMIs
• Monthly fixed expenses
  

Let’s look at an example of budget distribution for a salary of ₹92,000:
 

4. Use One-Time Income To Make Faster Repayments

During the year, if you receive any bonus, incentive, or gift amount, you can use it to prepay your loans.

Mahima received a performance bonus of ₹45,000. She used ₹35,000 to prepay her personal loan, reducing her principal. Let’s look at its impact on her loan:

5. Think About Combining Multiple Loans

Combining your loans is a good option for you if you are handling more than one loan at a time. It can help you make your monthly payments easier.

Surya is paying more than 18% on one loan and 13% on another. Let’s look at after combining into one loan:

6. Avoid Missed Payments

You are aware of the fact that penalties and late fees are costly. You should set automatic deductions so you never miss your due dates. If you miss even a single EMI it can reduce your credit score and invite charges.

7. Don’t Hesitate To Talk To Your Bank

If you are facing any problems such as:

• Cash crunch
• Illness
• Job loss

Then you must inform your bank before missing a payment. Your lender will offer:

• EMI pause or moratorium
• Loan restructuring
• Tenure extension

It will help you avoid penalties. Also, you will be able to manage your credit history.

8. Avoid Fresh Loans

If there is not any emergency, then you must avoid taking any new debt while repaying old ones. You must try to keep your total monthly EMIs within 50% of your salary for better stability.

Final Thoughts

Do you think that the key to an effective loan repayment is speed? Then you are wrong. It is being consistent. If you want to become debt-free earlier then you should pay extra when it is possible, choose the right loan to close first, and keep your spending in check.

Even if you have a small amount to repay then do it. It will help you reduce your interest over time and give you more financial control. By following a repayment strategy effectively and with focus you will have peace of mind and have more confidence to handle your money.

FAQs

1. Is it possible to negotiate interest rates with banks?

Yes, especially if you have a strong repayment record.

2. Will early repayment affect my credit score?

Early repayment improves your score over time.

3. Is using a bonus for repayment a good idea?

Yes, it reduces your loan balance and total interest paid.

4. Can I skip an EMI if I don’t have funds?

You should speak to your bank immediately to explore options.

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?