A personal loan is one of the most important financial tools as it helps you to meet your immediate financial needs such as holiday trips or medical emergencies. But, if you do not pay your EMIs timely, it can lead you to a debt trap which, in turn, may severely affect the future of you and your family. Therefore, you must be aware of few things to stop personal loan from becoming a bad debt. If you know What’s the best reason to give for a loan? then you must find these step in mind forever.
Here are few tips to prevent a personal loan from turning into a bad debt:
- Monetize assets:
If you are not able to repay your personal loan on time, you have the option to liquidate few assets and use the returns from the same to complete loan payments. You can use the assets such as car, life insurance policies, National Savings Certificate, RBI Bonds, gold jewellery, bank fixed deposits, shares, debentures and mutual funds to monetize and use the cash to pay off your personal loan EMIs.
- Talk to your lender:
In case you have defaulted on your personal loan installment, then you should talk to your lender about the same. You can work out a plan with the lender on restructuring the loan to smaller EMIs and greater tenure. If there are genuine reasons like unemployment or health issues, the bank will give you EMI holiday for a few months but will impose a penalty on the outstanding amount.
- Convert the loan into secured loan:
You can talk to your lender to check if your unsecured personal loan can be turned into a secured one and restructure it for a lower monthly payment after discussions with the bank. The only concern with converting a personal loan into a secured loan is that you have to forego the collateral in case of a default. Therefore, it is important for you to assess your capacity to repay the secured loan through your income flow with the collateral at risk.
- Take the loan from friends or family:
You can take a loan from your friends or family members to pay off your EMI. It is the best option in case you are unable to secure urgent cash and hence, will prevent your personal loan from turning into a bad debt.
- One time settlement:
This option is generally exercised when you are unable to repay the loan to the extent that your interest accrued is larger than the principal amount. In such situations, the bank may give you an option to settle the loan through a small payment. However, your credit report will reflect the fact that you could not repay your loan fully, and therefore your credit score will be affected.
Conclusion: So, if you follow the above-mentioned tips, you can prevent yourself from getting into a debt trap. It is important that you clear all dues on time and not let your creditworthiness be harmed.