Personal Finance

How to Manage Loan Payments If You’re Facing Salary Cuts Due to the COVID-19 Pandemic?

How to Manage Loan Payments If You’re Facing Salary Cuts Due to the COVID-19 Pandemic?

Last Updated : May 22, 2020, 4:25 p.m.

We are living in unprecedented times where things are going from bad to worse on the economic front due to disruptions created by the COVID-19 pandemic. The lockdown is still there, albeit with much more relaxed norms from when it was imposed for the first time on March 25, 2020. Mostly, it’s salaried who are at the receiving end of all this disruption. Companies are downsizing their headcount to cope with reduced business volumes due to the lockdown. On the other hand, many employees have to live with a reduced salary, adversely affecting their standard of living. And when you have a loan obligation to fulfill, it could only create a headache for you. We recognize this problem and have thus come with some solutions you could think of employing. Read on to know the same.

Control the Controllable

You can curse the salary cut for whatever problems you are facing. But it doesn’t help you one bit. What could help you is to be on top of things that are in your control. Assuming you are working from home like most are doing ever since the lockdown came into existence on 25th March 2020. In that case, the expenses on travel and fuel must have been either NIL or very low, giving you the required savings to make loan payments. Now see the rate of a salary cut, how much is it? Let’s say it is 15% based on the overall salary cut rate happening across India. Before lockdown, travelling must have been accounting for around 10%-15% of your income. In that case, your savings won’t have dropped much despite salary cuts.

Look to Restructure Your Big-ticket Loans

Carrying out the EMI obligation for a big-ticket loan like a home loan can be daunting amidst salary cuts. So, if you have a bulk amount, look to part pay the loan. This will reduce the monthly installment as well as interest outgo. All you need to do is visit the branch of the lender and submit the cheque of the part payment amount. If your lender is charging a greater rate of interest on your home loan, you could even think of a balance transfer. But given that we are living in lockdown times, necessary formalities like a property verification may not go through. Thus, getting the balance transfer done is slightly impossible even though you meet the eligibility in terms of credit score and the overall repayment history.

Have You Availed the 3-month Moratorium on Loan EMIs?

The Reserve Bank of India (RBI) while announcing the monetary policy on March 27, 2020, not only announced a 75 basis point cut in the repo rate but also gave borrowers the moratorium option on all their retail loans for 3 months. If you have opted for the same, the loan burden will rise. But then, you can’t help it now. What you can do though is save whatever you can to fulfill the increased loan obligation.

Give Your Credit Card Shopping a Break Till Things Get Normal

It doesn’t matter how much you are tempted to go for credit card shopping with the lockdown restrictions getting eased greatly now, avoid using the credit card till the time you are facing salary cuts. Because, if you fail to pay the credit card due in full and on time, unnecessary interest and late payment charges will be levied. If you talk about interest charges, they can be as high as 45% a year. Loan payments will only get tough with massive revolving credit card debt.

Look to Generate Monthly Income

A single penny saved in times of crisis like this strikes gold for you! But keeping the savings idle on your hand won’t be good. You should look to incentivize the savings by investing in products that can help generate income for you every month. Yes, there are monthly income products at both banks and post offices. So, if you have a bulk amount, put it to good use by investing in a monthly income planner. The monthly income so received will give you extra space for loan payments.

Don’t Go for Impulsive Spends

The current lockdown is in the fourth stage and there are a lot of relaxations in terms of home delivery services related to essential and non-essential products. And you could be tempted to spend a lot more which was not possible for the last two months. Control that urge and look to spend with discretion so that you are left with enough to pay your loan dues on time.

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