Summary of this article
Pay high-interest loans first to save long-term money.
Keep manageable credit cards to maintain good credit health.
Consolidate loans smartly with a clear repayment plan.
Every financial decision leaves a mark. Delay paying off high-interest loans, and you could spend years stuck with interest. Opening too many cards, and what seems like flexibility, can quickly turn into chaos. Even debt consolidation, without discipline, is just reshuffling numbers.
Akshay Aedula, Product and Growth, from CRED, answers some of the most common credit questions, showing how to make smarter moves with loans, cards, and repayments so your money works for you, not against you.
Is it better to pay off a small loan or a high-interest loan first?
Yes, closing high-interest loans first is always advisable, because these loans grow faster and silently cost you more over time. Knocking them down early can save you a significant chunk of money in the long run.
For example, if you have a Rs 50,000 personal loan at 15 per cent interest and a Rs 20,000 education loan at 8 per cent interest. Over a 10 years period, the personal loan alone racks up about Rs 1,52,278 in interest, while the education loan adds another Rs 23,178. Closing the personal loan first can save you from years of extra interest piling up, while your smaller, lower-interest education loan can take a little longer.
This strategy is called the ‘avalanche method’, start with the steepest slope (highest interest) and work your way down.
How many credit cards should I have?
There’s no one-size-fits-all answer; it really depends on your spending habits and how reliably you can pay on time. Having more than one card can be helpful as it spreads out your spending, keeps overall credit utilisation lower, and improves your credit mix. That said, too many cards can backfire- they can shorten the average age of your accounts and make it harder to keep track of payments.
Create balance and have enough cards so you can manage your credit wisely, but not so many that it turns into chaos.
Is it risky to have personal and business loans at the same time?
Yes, it can be risky. Managing multiple repayments at once adds pressure, and a single missed payment can drag down your credit score.
The right approach is to borrow what you truly need and make sure you can repay on time. Keep your loans manageable.
Can consolidating my loans improve my credit score?
Consolidating loans can help in the long run, but it’s not an instant fix. Basically, by combining multiple loans, you can lower your overall credit utilisation and simplify payments, making it easier to stay on top of repayments. Over time, this responsible behaviour can help improve your credit score.
But the key is to consolidate strategically. Pair it with a clear repayment plan and budget to make sure you’re not just moving debt around, but actually managing it better.
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)
