Managing debt can feel overwhelming. But with the right approach, you can regain control. Know more about managing debt with a low credit score. With practical steps, you can overcome financial burdens, even if your credit history isn’t perfect.
Whether it’s due to job loss, medical emergencies, or overspending, falling behind on payments can quickly damage your credit score. A low score makes it harder to get affordable loans, increasing your financial burden. But with the right approach, you can reduce your debt, improve your creditworthiness, and regain peace of mind.
Short-term actions can provide immediate relief and prevent your situation from worsening.
Pay off your smallest debts first: This builds momentum and gives a sense of achievement.
Review your credit report: Check for errors or outdated information. You can get one free report annually from CIBIL or Experian.
Cut back on non-essential expenses: Cancel subscriptions, reduce dining out, and limit online shopping.
Avoid taking on new debt: Don’t apply for new credit cards or loans unless absolutely necessary.
Create a monthly budget: Track income and expenses to identify savings opportunities.
Missing due dates can lead to late fees and further damage your credit. Make a list of all your EMIs, credit card bills, and utility payments. Set reminders to stay on top of deadlines. Paying on time is one of the easiest ways to protect your credit score.
Ask for a Lower Interest Rate
If you’ve been a loyal customer, your bank may be willing to reduce your interest rate. This is especially true for credit cards and personal loans. Lower interest means more of your payment goes towards the principal, helping you clear debt faster. Always negotiate before accepting the default rate.
Talk to Your Lenders Before You Miss a Payment
If you anticipate missing a payment, contact your lender in advance. Many Indian banks offer restructuring options or temporary relief under RBI guidelines. This could include a moratorium, reduced EMI, or extended tenure. Being proactive shows responsibility and may prevent your account from being handed over to a debt collector.
Long-term planning is essential to stay debt-free and improve your credit score.
Choose a repayment strategy: Snowball or avalanche method.
Seek professional help: Financial advisors or credit counsellors can guide you.
Consolidate your debt: Combine multiple loans into one manageable EMI.
Opt for balance transfers: Shift high-interest credit card debt to a lower-rate card.
Build an emergency fund: This prevents future reliance on credit.
Avoid habits that hurt your credit: Like maxing out cards or applying for too many loans.
The Snowball Method
This strategy prioritises paying off your smallest debt first while maintaining minimum payments on all other debts. Once the smallest is cleared, move to the next. It’s psychologically rewarding and keeps you motivated. For example, clear a ₹5,000 credit card bill before tackling a ₹50,000 personal loan.
The Avalanche Method
Here, you pay off the debt with interest rates first that are higher. This saves more money in the long run. For instance, if your credit card charges 36% interest and your car loan is at 12%, focus on the card first. Though slower to show results, it’s financially efficient.
Work with a Financial Advisor
A certified advisor can help you create a realistic debt management plan. They’ll assess your income, expenses, and liabilities to suggest the best repayment strategy.
Debt Consolidation
Consider combining your multiple loans into one with a lower interest rate to simplify payments and potentially reduce your overall borrowing costs. This simplifies repayment and may reduce your monthly outgo. Look for debt consolidation loans from NBFCs or banks. Ensure you don’t extend the tenure too much, or you’ll pay more in the long run.
Take charge of your finances by tracking every rupee. Use budgeting apps or simple spreadsheets. Set spending limits and stick to them. Avoid impulse purchases and keep credit card usage below 30% of your limit. These habits will help you stay on track and avoid falling back into debt.
Credit Card Balance Transfer
Many Indian banks offer 0% interest on balance transfers for a limited period. Use this to shift high-interest debt to a new card and repay it within the offer window. Be cautious of processing fees and interest after the promotional period. This is a smart way to reduce your burden if used responsibly.
Overcoming debt with a low credit score is challenging, but not impossible. Start by understanding your financial position. Use short-term fixes to stabilise your situation, then adopt long-term strategies to break the debt cycle. Whether it’s credit card debt, student loans, or a car loan, every step you take brings you closer to financial freedom. Avoid actions that hurt your credit, like missing payments or overborrowing. Instead, focus on paying off your debts, consolidating wisely, and building healthy money habits. With time, patience, and discipline, you can turn your financial life around.