Struggling with multiple loans? Here's how to reduce interest and take back control in 2026
In 2026, with rising household debt and tighter DSR (Debt Service Ratio) regulations, more than 40% of borrowers now hold two or more loans. Managing multiple debts without a clear repayment plan can lead to excessive interest and credit score decline. Fortunately, with structured repayment strategies and debt consolidation options such as government-supported refinancing (Happiness Loan, Didimdol), you can effectively reduce your burden and even save up to 30% in interest.
This guide walks you through the current debt landscape, repayment strategies like Debt Avalanche vs. Debt Snowball, government refinancing options, and actionable steps for setting up a sustainable loan repayment plan.
1. Analyze Your Current Loan Situation
Before planning, start by listing every loan: outstanding balance, interest rate, monthly payment, and remaining term.
| Loan Type | Amount | Interest Rate | Monthly Payment | Remaining Term |
|---|---|---|---|---|
| Credit Loan | KRW 50 million | 8% | KRW 900,000 | 7 years |
| Mortgage | KRW 200 million | 4.5% | KRW 1.2 million | 20 years |
| Credit Card Loan | KRW 20 million | 15% | KRW 600,000 | 3 years |
Make sure your total DTI (Debt to Income Ratio) stays under 600% and avoid delinquencies to protect your credit score.
2. Compare Repayment Strategies
There are four main repayment methods. Choosing the right one can lead to significant interest savings and faster debt freedom.
| Strategy | Priority | Interest Saved | Example (KRW 300M, 7% avg) |
|---|---|---|---|
| Debt Avalanche | High interest first (15%) | 25–30%↓ | KRW 75M saved in 3 years |
| Debt Snowball | Smallest balance first | 15–20%↓ | Motivation-focused, 2-year payoff |
| Equal Payment (Principal + Interest) | Fixed monthly amount | Stable | KRW 1.5M/month, KRW 240M interest |
| Principal-Only Equal | High early payment | 20%↓ | Starts at KRW 1M/month, reduces over time |
If cash flow allows, the avalanche method delivers the highest savings. Snowball works best for motivation and visible progress.
3. Debt Consolidation and Refinancing Options (2026)
Refinancing multiple debts into one lowers your average interest rate and simplifies repayment. In 2026, several government and private options exist:
| Program | Eligibility | Interest Rate | Limit |
|---|---|---|---|
| Happiness Loan | Earners ≤ KRW 45M | 3.5% – 5% | Up to KRW 200M |
| Illegal Loan Prevention Refi | All borrowers | Effective 5% – 6% | Interest cashback 50% on full repayment |
| Didimdol Refinance | Low-income homebuyers | 2.8% – 3.6% | Up to KRW 200M |
| Private Refi | Bank/Savings Bank Clients | 4% – 7% | KRW 100M – 300M |
The application process includes product comparison, document submission (income proof, debt statements), approval, and automatic repayment of existing loans.
4. Steps to Build a Repayment Plan
Break down your debt strategy into three clear phases: budgeting, prioritizing, and monitoring.
- Budgeting: Allocate no more than 30% of your income to repayments (e.g., KRW 150M from KRW 500M income).
- Prioritizing: Pay off high-interest loans (e.g., 15% card loan of KRW 20M with KRW 1.7M/month in 1 year).
- Monitoring: Use tools and dashboards to track your progress and adjust as needed.
| Period | Monthly Payment | Estimated Total Interest | Interest Saved |
|---|---|---|---|
| 1 year | KRW 1.5M | KRW 21M | KRW 5M |
| 3 years | KRW 1.5M | KRW 54M | KRW 15M |
| 10 years | KRW 1.5M | KRW 120M | KRW 40M |
Consistent payments and extra prepayments can shorten the loan period by 5 years or more.
5. Key Considerations and Tips
Debt consolidation and repayment planning are most effective when you stay informed and proactive.
- Prepayment penalties: Waived across financial institutions in 2026 (actual cost-based).
- DSR tightening: Term extensions limited; personal income and conditions now prioritized.
- Use calculators: Compare equal principal vs. equal installment models.
- Seek guidance: Visit a public financial support center for free consultation (e.g., Happiness Loan).
Ultimately, planning ahead, reviewing your debt profile regularly, and using consolidation tools wisely will help you reduce your burden and regain control of your financial future.
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