Now Reading: 5 steps to break free of EMI trap and regain control
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5 steps to break free of EMI trap and regain control
Multiple EMIs can quietly eat into monthly income, leaving little room for savings or emergencies. Financial experts advise borrowers to start by listing every active EMI and comparing the total to take-home…
Multiple EMIs can quietly eat into monthly income, leaving little room for savings or emergencies. Financial experts advise borrowers to start by listing every active EMI and comparing the total to take-home pay. If EMIs exceed 40% of income, the borrower is over-leveraged.
The first step is to rank debts by interest cost and prepay the most expensive loan first, after checking for prepayment charges. Automating repayments helps avoid missed dues. Borrowers should pause new EMIs until cash flow improves and pay credit card dues in full each month.
Experts warn against taking a new loan to repay an old one unless it clearly lowers total cost. Those facing stress should speak to lenders early, not after a missed payment. Debt consolidation may help, but only if the new loan genuinely reduces overall cost after fees.
Indian Opinion Analysis
The 40% EMI-to-income threshold that experts cite aligns with the broad banking norm used by lenders to assess repayment capacity, though the RBI does not prescribe a single limit for all borrowers. What makes the EMI trap hard to escape is that each new loan resets the monthly burden higher, often before older ones are cleared. The practical test for a reader is simple: add up all EMIs, divide by monthly take-home, and if the result is above 40%, any new EMI will likely push cash flow into deficit. Lenders can offer restructuring under RBI circulars, but only if the borrower approaches them before a default.
Source: livemint.com
This brief was synthesised by AI from the source linked above.
