2 min read
25 May 2021

Your CIBIL Score is based on your credit report and history, and it is what lenders use to determine your eligibility for a loan. A good CIBIL Score encourages lenders to increase your loan amount and loan tenure, and in some cases, offer you more competitive interest rates as well. One of the major factors that affects your CIBIL Score is outstanding debt.

Prioritise your debts by interest rate and not total amount

If you have multiple sources of debt, it is easy to get overwhelmed by the various interest rates and EMI plans. Moreover, the tendency to view all debt as one massive unit can make repayments seem intimidating and unmanageable. During such times, it helps to ladder your debts, that is, prioritise them according to interest rate.

Paying off debts with the highest interest rate first, or directing more money towards those accounts rather than the low-interest debts, ensures that you are not saddled with large amounts of interest in the long term.

Make repayments every month

Irrespective of how many debts you are repaying at a time, and how important one debt may seem in comparison to another, it is important to remember that a little goes a long way. Make regular repayments towards each one of your debts. Not only will it reduce your financial liabilities, but it will also reflect well on your credit report and CIBIL Score.

Additional Read: How to check your CIBIL Score

Change your spending habits

When you are repaying a debt, that should become a priority until it is paid off in full. If you tend to splurge on items that are not immediately necessary, you may find that you are not left with enough money to direct towards loan repayments. Put the credit card aside for a while, consider downsizing if you are paying off a particularly large debt, and definitely put off taking an expensive holiday or buying a luxury car until after you are done.

Do not let your savings take a hit

While it is important to be more frugal with your day-to-day expenses, make sure you are not compromising on long-term savings. The regular contributions towards your emergency fund and retirement are the assets that you’ll need to bank on in the future. Compromising on long-term security for the sake of a loan repayment only perpetuates the cycle of debt, since you may find yourself needing to rely on loans all over again to cover unforeseeable expenses. Instead of cutting down on your savings contributions, make cutbacks on your variable expenses.

Consolidate your debts to pay them off with a single EMI

Paying off several debts at once can get complicated. Needing to keep track of multiple EMIs, each with their own interest rate and repayment due dates, can take up more time than you have to spare. What is more, a wrong calculation or an overlooked payment can lead to a defaulted payment that has serious consequences on your credit score. When you are in such a situation, you may find it beneficial to consolidate your debt.

With an instant personal loan, you manage your debt easily with a single EMI, and you may also find that the interest rates on these loans are a lot more relaxed. Consider lenders like Bajaj Finserv who offer amounts up to Rs. 40 lakh at competitive interest on such debt consolidation loans for up to 5 years. You can also choose a Flexi Loan facility that allows you to pay interest-only EMIs to further manage your cash flow better. See if you qualify for it by using the Personal Loan Eligibility Calculator and plan your EMIs with ease.

Check your personalised credit dashboard with the Bajaj Finserv Credit Pass and monitor your CIBIL Score like a pro.

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