Debt repayment getting difficult? Why speaking to your lender early can help protect your credit score

A financial setback can easily turn into a more complicated situation if not handled properly. In the worst cases, it can result in forced recoveries and legal ramifications for the borrower. This is because missed repayments, coupled with accrued interest, can pile up quickly.

This calls for proper due diligence and an understanding of the borrowed debt on the part of borrowers, along with a clear and frank conversation with their lender before the situation worsens and gets out of hand.

Vijendra Shekhawat, CEO, Choice Finserv, explains this in detail, stating, “When repayment turns difficult, silence is the costliest choice a borrower can make. Reaching out to your lender early opens the door to a workable arrangement before an account slips into default. Borrowers who engage honestly protect their credit standing far better than those who stay quiet and let dues pile up.”

That is why, to keep their credit profile clean and free of ‘hard inquiries’ and the risk of being marked as in default, it is wise for borrowers to discuss their financial situation with their lender and try to reach an agreement or a loan restructuring arrangement.

Such a proactive approach can help ensure that the borrower's credit profile remains intact and a healthy credit score is maintained, which can eventually help secure loans on better terms and conditions.

At a fundamental level, when debt spirals out of control, it becomes more than a financial challenge. It can lead to psychological stress, anxiety, and a sense of helplessness. Seeking support and taking things one step at a time in such situations can help borrowers regain a sense of control.

Dr Vishal Dhiman, Professor & Head, Department of Psychiatry, AIIMS Rishikesh, touched upon this aspect, stating, “When debt feels overwhelming, the immediate task is not to solve everything at once, but to find some support and hold on to that pillar for a while. Allow yourself time; difficult circumstances can change. Life does not end with a financial setback. Find your most loving ‘straw in the river’—a person, relationship or purpose that helps you stay afloat while you regain your footing.”

Keeping these factors in mind, let us discuss several steps that can help borrowers meaningfully address loan repayment challenges and ensure such situations are resolved amicably.

List every loan, outstanding amount, interest rate, EMI and due date. Knowing the complete picture can replace uncertainty, stress and doubt with a clear repayment roadmap.

Identify loans or credit balances carrying the highest interest rates. These can grow faster and cost more over time, so they deserve greater attention. For example, credit card debt is generally the most expensive form of debt; try to clear it first to ensure you repay high-interest debt.

Continue paying minimum or required dues across accounts while directing any additional repayment towards the highest-interest debt. Once it is cleared, move to the next one.

Temporarily reduce discretionary expenses and avoid taking on fresh debt unless absolutely necessary.