Has personal loans trapped you in the debt trap? These 5 ways will get you out of this maze.

Are you trapped in the debt trap of personal loan? Don't worry. Know 5 effective ways like balance transfer, debt consolidation, and right planning, which will help you get out of this burden.

Taking a personal loan is very easy, but its interest rates are very high. In such a situation, a large part of the salary every month goes into EMI and it feels like you are earning only to repay the loan. Many times, due to this, the risk of loan default or getting trapped in the debt trap increases. If you are also going through the same situation, then do not panic. With the right strategy and financial discipline, you can easily get out of the Personal Loan Debt Trap. Know here the ways that will help you get out of this debt trap.

1. Loan Balance Transfer: Reduce the burden of interest

This is the most popular way to reduce the burden of personal loan. It simply means transferring your existing expensive loan to another bank or NBFC, which is offering you a lower interest rate.

How does it work?

Suppose, you have taken a loan at an interest rate of 14%. Another bank is ready to give you the same loan at an interest rate of 10%. In such a situation, you can transfer your loan there. This will reduce your EMI and a large amount of interest will be saved. But while transferring the balance, definitely find out about the processing fees and other charges.

2. Debt Consolidation: Make several EMIs into one

If apart from personal loan, you are also running credit card bills and other small loans, then debt consolidation is a great option for you. In this, you take a big and cheap loan to repay all the small and expensive loans.

How does it work?

Suppose you have a personal loan of Rs 2 lakh (15% interest), a credit card bill of Rs 1 lakh (36% interest) and another loan of Rs 50,000 (18% interest). To repay all these, you can take a new Debt Consolidation Loan of Rs 3.5 lakh at the rate of 11%. This will free you from the hassle of remembering different EMIs and the burden of interest will also be reduced considerably. This method is very good for those who have 2-3 or more loans and credit card bills.

3. Increase EMI or Make Part-Payment

If you have received a bonus, incentive or any lump sum amount from somewhere, then instead of spending it, use it to make part-payment of your loan. This is the most effective way to close your loan early.

How does it work?

When you make a part-payment, that amount directly gets reduced from your principal amount. Due to reduction in principal amount, the interest charged on it also automatically reduces, which either reduces your EMI or reduces the loan tenure. Always choose the option of reducing the loan tenure.

4. Create a Strict Budget

This method may seem simple, but it is the most effective. Track your expenses and create a strict budget. Completely curb unnecessary expenses (such as eating out, expensive shopping, unnecessary subscriptions). Whatever money is saved from this, use it directly for your EMI or part-payment. You can adopt the 'snowball' (finish smaller loans first) or 'avalanche' (finish the most expensive loan first) method.

5. Loan Settlement - The last option

This should be your last resort when none of the above methods are working and you are completely unable to pay the EMI. In this, you talk to the bank and request them to waive off some amount of the principal and close the account by making a lump sum payment.

How does it work?

Suppose you have a loan outstanding of Rs 2 lakh. You can talk to the bank to settle the loan for Rs 1.4 lakh. On settling the loan, the bank writes "Settled" or "Written-off" in your credit report, due to which your CIBIL Score falls very badly. This makes it almost impossible for you to get any kind of loan or credit card in the future. Therefore, go on this path only when there is no other option left.