Taking a personal loan is quick and easy today. You fill out a form, submit a few documents, and the money reaches your account. But the real challenge begins after that, when the EMIs start eating into your salary. The high interest rate, which often ranges from 12% to 24%, makes it even more difficult to repay. In some cases, people end up taking more loans to pay off earlier ones, falling into a cycle known as a debt trap.
If you’re facing the same stress and feel stuck, there’s good news. With a few changes in your financial habits and some smart decisions, you can get out of this loan trap without too much trouble. Here are five simple methods that can give you real relief.
1. Lower Your Interest Burden with Loan Balance Transfer
Best For: People who are paying high EMIs due to high interest rates.
If your current personal loan is charging you a high interest rate, look for a bank or NBFC offering a lower rate. You can transfer your remaining loan balance to that lender.
Example: If you have a personal loan of ₹3 lakh at 14% interest and another bank offers 10%, transfer your loan. This small step can reduce your EMI and save thousands in interest.
Tip: Before you switch, check the processing fees, prepayment charges, and hidden costs. Make sure the overall savings are worth it.
2. Consolidate All Loans Into One Simple EMI
Best For: People juggling multiple loans and credit card bills.
Handling different EMIs every month is not just confusing—it’s expensive too. If you have credit card dues, personal loans, or other high-interest loans, combine all of them into one debt consolidation loan at a lower interest rate.
Example: Say you owe ₹2 lakh (15%) in personal loan, ₹1 lakh (36%) in credit card dues, and ₹50,000 (18%) in another loan. Instead of paying 3 EMIs, you can take a loan of ₹3.5 lakh at 11% interest and close all old loans.
Benefit: You save on interest, reduce the stress of tracking multiple EMIs, and simplify your finances.
3. Use Extra Income to Pay Off Loan Early
Best For: Anyone who receives bonus, incentives, or other lump sum money.
Don’t spend your bonus or unexpected money on gadgets or holidays. Use it to part-pay your loan. It’s one of the most effective ways to reduce your total loan cost.
How it works: If your principal amount goes down, your future interest also reduces. You can either lower the EMI or reduce the loan duration. Reducing the loan period is a smarter option because it saves more money.
Even increasing your monthly EMI a little (if your salary grows) helps you close the loan faster.
4. Make a Strict Budget and Follow It Without Fail
Best For: Everyone who wants long-term financial peace.
Cutting expenses might sound boring, but it works like magic in debt repayment. Make a simple budget. List your monthly income, fixed expenses, and unnecessary costs.
Reduce spending on eating out, shopping, or online subscriptions. Use the extra cash to either increase your EMI or make small part-payments.
You can follow the “snowball method” (pay off the smallest debt first) or “avalanche method” (pay off the costliest debt first). Choose what suits you and stick with it.
5. Loan Settlement – Use This Only As a Last Option
Best For: People who are financially stuck and unable to repay their loans at all.
If you have lost your job or face a big financial crisis, and you really cannot pay EMIs anymore, you can talk to your bank for a loan settlement. In this case, the bank may agree to let you close the loan by paying a lesser amount.
Example: You owe ₹2 lakh but cannot repay. The bank agrees to settle it at ₹1.4 lakh. You pay that, and the loan is marked as “settled”.
Warning: This affects your credit score badly. Your CIBIL report will show this, and you may not be able to take any loan or credit card in the future. Only go for this if nothing else works.
Final Word: A Change in Money Habits Goes a Long Way
Breaking free from a personal loan debt trap doesn’t need magic—it just needs planning, discipline, and timely action. Remember, loans are not the problem. Not managing them properly is. Start with small changes and keep your financial future in control.
