Festival EMIs, credit card bills: How to prioritise repayments, cut costs | Personal Finance

Now that Diwali is over, Rohit Malhotra (name changed on request) is reckoning with what the festive sales cost him. The 34-year-old regional sales manager at a pharmaceutical company in Noida had planned a modest Diwali. He takes home about ₹95,000 a month, of which ₹28,000 goes towards the equated monthly instalment (EMI) on the home loan for his flat in Greater Noida West.

 

In mid-October, he replaced the family’s old television with a ₹62,000, 55-inch smart television on a nine-month no-cost EMI of about ₹6,900. A week later, he bought a ₹38,000 front-load washing machine. He financed the purchase through a non-banking financial company (NBFC) and will pay about ₹3,400 a month for a year.

  

He also charged a ₹78,000 smartphone, a long weekend in Jaipur with his wife and daughter, and a Dhanteras gold coin to his credit card. His outstanding balance rose to about ₹1.45 lakh against a ₹2 lakh limit.

 

Credit bureau reports, Reserve Bank of India (RBI) data and surveys by loan platforms from past years have shown a spike in borrowing during Diwali, with shoppers going for personal loans, consumer durable loans, credit card spending and buy now, pay later (BNPL) plans. Borrowers often struggle to repay these dues once the spending binge ends.

 

Take stock of debts

 

List every unpaid bill and borrowing, including credit card balances, BNPL instalments, EMIs and informal loans. For each debt, note the outstanding amount, interest rate, repayment status and due date. Add up the outstanding amounts to find out how much you owe.

 

“Provide for essential expenses such as rent, school fees and basic living costs before calculating the surplus available for debt repayment,” says Vishal Dhawan, founder and chief executive officer (CEO), Plan Ahead Wealth Advisors.

 

Prioritise repayments

 

When cash is short, pay at least the minimum needed to keep each loan current. A default can hurt your credit score. “Keep loans secured by a home or vehicle current, because the lender can take the asset if payments stop,” says Anurag Mehra, director, Expert Panel.

 

Rank your debts by interest rate. Personal loans can be costly, and credit card dues are usually the most expensive. “Put any money left after servicing each loan towards the highest-cost debt,” says Arnav Pandya, founder, Moneyeduschool. If you can postpone payments, defer those on the lowest-cost debts.

 

Make a repayment plan

 

Set a clear goal, such as becoming debt-free in three or four months. “If you have already overspent and cash is short, cut discretionary expenses and postpone some future expenses,” says Pandya. Family or friends may be able to lend you money interest-free for a short period. Explain how you plan to repay them when you ask.

 

Investment returns will not match the interest on credit card debt that costs more than 40 per cent. “If you cannot repay that costly card debt within two or three months, redeem an investment to pay it off, and try to rebuild the investment afterwards,” says Pandya.

 

When to refinance debt

 

Refinance only if the replacement loan costs less after you account for switching charges. “Consider refinancing credit card dues first, because they are usually the costliest to carry forward and unpaid balances get more expensive every month,” says Adhil Shetty, chief executive officer, BankBazaar.

 

Converting card dues into a fixed-EMI loan is usually cheaper than carrying the balance on the card. A personal loan or a balance transfer facility can also cost less over the repayment period because these options typically offer a fixed, lower rate. “No-cost EMIs and short BNPL plans are less urgent to refinance while payments stay on schedule, because their cost is generally built into the purchase price,” says Shetty.

 

Dhawan suggests checking whether your employer offers interest-free or subsidised loans, or has a tie-up with a bank that offers a better rate.

 

Consolidate loans

 

A debt consolidation loan replaces several existing debts with a single loan. “Combining small debts scattered across cards, BNPL plans and EMIs into one loan makes them easier to manage, with a single repayment date to track,” says Shetty.

 

Consolidation can cut interest costs if the new loan is cheaper than the debts it replaces. “A longer-tenure consolidation loan may free up cash for other needs,” says Dhawan. He recommends borrowing only what is needed so as not to unnecessarily add to interest cost. 

 

Request restructuring

 

If you cannot make the next payment, contact your lender before the due date and submit your request by email or letter. Recovery pressure often rises after default.

 

Restructuring changes the loan terms to ease the monthly burden while you repay the full amount. Each lender decides whether to offer relief under its own board-approved policy. “Borrowers usually have to show genuine hardship such as job loss, a pay cut or a medical emergency,” says Mehra.

 

Lenders generally prefer accounts that are current or only recently overdue. “A good credit score and a record without defaults may help the lender view the request favourably,” says Dhawan.

 

A longer tenure reduces the EMI but raises the total interest bill. Some lenders temporarily reduce EMIs or offer a short payment pause. “Interest accumulates during a pause, leaving higher dues when payments resume,” says Mehra. A lender may also reset the interest rate or waive penal charges and late fees.

 

Ask for the revised EMI, tenure, total interest and fees in writing before you agree. A restructuring flag on the credit report may make new loans harder or costlier to obtain for a while.

 

Settlement: The last resort

 

In a settlement, the lender accepts less than the full outstanding amount as full and final payment. This usually happens when the account is well overdue and the borrower cannot realistically repay in full. Recovery calls stop once you pay the settlement amount.

 

Get the agreement in writing and pay into the lender’s official account. “Collect the settlement letter and no-objection certificate from the lender before treating the matter as closed,” says Mehra.

 

The credit report generally shows the account as “settled” rather than “closed” for about seven years. “This can make it harder to obtain home loans, car loans or credit cards,” says Mehra.

 

Restructuring generally suits borrowers who expect their income to recover after a temporary setback. Settlement is a last option when income has been lost permanently or for a long time.