Lost Your Job? Here Are 12 Ways You Can Manage Your EMIs

Various companies, ranging from start-ups to large IT companies, have announced large-scale layoffs in response to an economic downturn and concerns about a recession. Suddenly losing your job is a nightmare for anyone, especially those who have dependents like a spouse, parents, or children to support. Moreover, the continuing obligation of paying off loans, such as home loans, car loans, personal loans, or credit card EMIs, can make the situation even more challenging.

Unfortunately, if you or your spouse has been affected by the recent layoffs, the sudden loss of a regular income can create financial crises. It is quite normal and understandable if you are unsure of how to manage your loan EMIs during such tough times. This article provides effective financial strategies that can help you manage your loan EMIs after losing your job.

1. Inform Your Lender:

If you are unable to pay your loan EMIs after losing your job, the first thing you should do is inform your lender right away. If you have a good history of making regular payments, your lender may be willing to work with you to find a solution.

2. Request for Loan Restructuring:

When a bank offers an EMI holiday or moratorium period, there are some important factors to consider. Firstly, it is not a holiday where you don't have to pay back the money. Instead, the amount will need to be repaid later with interest. The moratorium period only means you have a few months of relaxation before the late payment is recorded as a default on your credit history. Furthermore, it is up to your lender to decide whether you are eligible for this benefit, and the interest charged on the delayed EMI payments will also be determined by the bank.

Hence, unless it is absolutely necessary to opt for a moratorium period, it is advisable to request your lender for loan restructuring. Considering your repayment history, the lender may consider lowering the interest rate and/or extension of the loan tenure, which will help in reducing your monthly financial burden.

3. Consider Balance Transfer:

If your lender is not cooperating during genuine financial crises, and you are paying huge interest, you can consider a balance transfer. It allows you to shift your outstanding loan to a different lender for a better rate of interest and/or other benefits. Technically, when you transfer your loan to another lender, the new lender pays off the unpaid loan balance to your existing lender, and your current loan account gets closed. Simultaneously, your new loan account starts with your new lender, where you pay a comparatively lower rate of interest.

4. Request for Partial Payment of the EMIs:

If you are unable to make the full payment of your EMIs, you can request the lender to allow you to make a partial payment of EMIs. Making the minimum repayment will help reduce your outstanding balance and total interest outgo.

5. Use Your Severance Package:

In case your employer has terminated your employment, they may have provided you with a severance package consisting of two to three months of salary. You can utilise this money to cover your EMIs and avoid late payment penalties as well as additional interest.

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6. Use Your Contingency Fund:

A contingency fund is like an umbrella that protects us during rainy days. It is a fund set aside for covering fixed expenses like loan EMIs, rent, and utility bills when a financial emergency, such as a sudden job loss or health issue, pauses or stops our income. An adequate contingency fund should cover 6 to 24 months' worth of expenses. If you have experienced job loss due to layoffs and have been maintaining an adequate contingency fund, you can use it to cover your loan EMIs and other bills. This fund can help you overcome financial hardships that may arise due to unforeseen circumstances.

7. Take Advantage of Your Provident Fund:

As many individuals faced financial crises due to Covid-19, the government has permitted a non-refundable withdrawal from Provident Fund accounts. Hence, it is possible to borrow an amount equal to three months of basic salary and dearness allowances (DA) or 75% of the PF balance, whichever is lower. This amount can be utilised to pay off your loan EMIs until you can secure a new source of income.

8. Liquidate Your Idle Assets:

When trying to repay loans during a job loss, using your contingency fund or extra savings may be the first option to consider. However, this may not be the right choice if you do not have sufficient savings. In such a case, you can consider liquidating assets/investments that are not generating adequate returns to repay your loans. It can be difficult to part with assets such as real estate, gold, mutual funds, etc., but it is a wise decision to liquidate them during times of need as this is the ultimate purpose of investing in them. It is pointless to hold onto assets when you are struggling to pay your EMIs. Nevertheless, make sure that the assets/investments you liquidate are not intended for specific purposes, such as a child's education or retirement, as liquidating them can create financial crises in the future.

9. Prioritise Loans:

Whenever you are trying to repay your debts, it is vital to prioritise your repayments first. Assess your financial situation by listing all your dues, their due dates, interest rates, and how much money is available to you for the repayments. Borrowers generally prioritise their repayments by sorting them with due dates. However, if the debt that has the nearest due date comes with a lower interest rate, it is not wise to pay it first. Hence, it is advisable to first sort the debts with interest rates and pay the debt with the highest interest rate first. This will ensure you pay the lowest possible interest. However, if most of your debts range in a similar interest rate, it is a good idea to sort them with the outstanding balance and pay the least outstanding balance first.

10. Get Help from Friends Or Family:

If you have friends or family members who are financially stable, you can consider asking them for a loan to help you pay your home loan EMIs. This way, you can avoid paying interest on the loan and also avoid late payment penalties. However, make sure you agree on a realistic timeline to repay the loan and be ready if they are unable to help you at this time, as money matters can spoil the relationships with your loved ones.

11. Avail of a Loan Against Investments:

Taking an extra loan to pay off your existing debt is not advisable unless it is the only option left, as it can make you fall into more debt. If your existing loan is unsecured, such as a personal loan, it will probably carry a higher interest rate. Hence, you may consider taking a secured loan that comes with a lower interest rate. However, make sure you opt for only the required amount and avoid the temptation to borrow the maximum amount. Moreover, it is crucial to pay your loan EMIs regularly, as not doing so can negatively impact your credit score. If you have any property or investment in securities, you can consider availing of a secured loan like Loan Against Property, Loan Against Mutual Funds, or Loan Against Fixed Deposit. But, if your investments are not generating expected returns, you should consider liquidating them instead of availing of a loan against them.

12. Take Professional Help:

If nothing seems to be working and you are unable to manage your loan repayment, it is advisable to seek assistance from financial advisors or consultants. If you can't afford to hire a consultant, you can approach the bank's experts for help. Some individuals are hesitant to seek professional advice on debt management, fearing judgement from the consultant regarding their financial situation. However, consultants are similar to doctors and aim to solve issues without judgement as long as you provide them with all the necessary information.

To conclude:

Losing a job can be a stressful experience, especially when you have EMIs to pay. However, it is possible to manage your EMIs effectively during a financial crisis with the right approach and planning. By taking the right steps explained above, you can maintain a good credit score and emerge stronger and financially stable in the long run.

KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

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Disclaimer: This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision.