Burdened with debt of ₹7 lakh? How to plan repayments over six months without exhausting your savings - Expert explains

Are you struggling to repay a debt of ₹7 lakh? Accomplishing this objective within six months can be daunting. A structured approach to repayments can help borrowers reduce debt without becoming financially vulnerable.

Analyse and assess the total outstanding loans, applicable interest rates on them, current monthly income, essential expenses and the impact on your credit score and credit profile. This will help you decide how much you can comfortably plan and allocate towards repayments without compromising your budget or emergency savings.

Prioritize high-interest debt and focus on effective management

Adhil Shetty, CEO of BankBazaar, explained how borrowers can plan and make repayments on such debt to help them retain their current credit scores.

He said, “A six-month target for ₹7 lakh needs about ₹1.2 lakh a month, which calls for a disciplined plan, so start by ranking your loans by interest rate. Pay off high-cost debt such as credit card dues first, since it can cost over 40% a year. You can also move it into a lower-rate personal loan or balance transfer. Keep three months of expenses as an emergency buffer, and avoid breaking long-term investments unless they earn less than your loan costs.”

Shetty shares five steps to clear debt seamlessly.

Five steps to repay ₹7 lakh debt

• Rank your total loans by the highest applicable interest rate.
• Clear out personal loans or credit card debt first that has the higher interest rate.
• If possible, try to restructure high-cost debt to manage it more effectively.
• Make sure you have three to six months of emergency funds to cover unforeseen expenses.
• Do not break your SIPs, mutual fund investments or fixed deposits in order to meet debt obligations, unless necessary.

Credit card dues generally carry the highest interest rates and should therefore be cleared on a priority basis to make the overall debt manageable.

If the existing borrowing is expensive, transferring the balance to a lower-interest personal loan or restructuring the overall debt may help reduce the overall cost of borrowing and interest burden.

Borrowers should compare processing charges, tenure and other key factors before proceeding with any such switch.

Protect your emergency savings while repaying loans

A six-month repayment plan should not come at the cost of financial security. Borrowers should ensure they maintain a six-month emergency buffer, i.e., an emergency fund covering at least three months of essential expenses.

Ensure that fresh borrowing is avoided at all costs, discretionary spending is kept in check, and any bonus or additional earnings are dedicated to loan repayments.