When you need money, personal loans are a lifesaver and, in some cases, it can help you achieve great things. However, there are cases when we lose sight of how to handle our loans, especially when we take out a large loan for an emergency expense. We may end up panicking because we do not know how to pay these loans and get all our other debts handled.
If you find yourself in this situation, do not worry because there are some steps to help you get all your personal loans and other debts controlled:
- Avoid Making More Debt and Group them into One Loan
As much as possible, don’t try to borrow more than what you can afford. As you get more debts, it would become harder for you to track each debt’s interest rates and repayments. As a result, you will find it harder to budget your money to pay for all your repayments.
In order to make repayments easier is by consolidating your debts into one loan, pay them all then pay the loan you took out. With this way, you will only have one repayment schedule to remember and save money from interest rates.
- Enroll in Automatic Debit Arrangement
When you get your salary on your bank account, ask your bank to take out the money you owe automatically from your account. By doing this, you won’t be tempted to use the money for other things.
However, when you do enroll for ADA, you should not use other credit, like credit cards, to make more debts since it will negate the benefits of ADA.
- Speak together as a family and discuss how the personal loan will be used
Talk with your family with regards to the personal loan and how each member can contribute. You must also talk to one another with regards to the necessity of the loan and what impact it can bring to the finances and family.
If you will be borrowing around $500, ask your family if they will help you pay it off or assist in funding some of the house’s expenses or paying some of the other debts not covered by the loan. Your family members should also work hard to ensure your debts do not increase further because it may affect your family’s budget.
- Get an interest-free loan if you can pay your debts within six months.
If you have debts that can be paid within six months or after six months, you can take out an interest-free loan to pay it off.
As the name implies, interest-free loans do not charge borrowers any interest for the first six months. Interest would only be added after six months. By taking this loan, you can get some savings because you can save the six months’ interest fee to pay for your other dues.
If you will be able to pay off your loans quicker, you should check if there are penalties for paying it early since some may charge a prepayment penalty.
- Allot a percentage of your budget for debt payments
When you have a lot of debts, it is best you allow a percentage of your monthly income to paying these debts or set a debt ratio. It should be at least 30% of your overall salary and if you exceed that rate, you should consider revising your budget to ensure you can pay your debts faster and aggressively.
If you intend to open another loan or another line of credit (ex. Subscriptions), you should consider your debt ratio and if it will exceed or remain the same when you add this new loan’s repayments. If it does exceed your debt ratio, it is best you pass on the loan and find other means to get money.
- Pay Whichever Has the Highest Interest First
When you pay your debts, you should pay off those with high interest first before paying the loans with low interest because it will help you save up on interest payments.
In order to determine which ones have the highest interest, list up all your loans in one paper, write their interest rates and adjust your repayments accordingly. You should start off with credit card loans, then follow it with personal loans and secured loans.
Alternatively, you can consolidate them in one debt and pay it in one go.
- Speak to an expert or speak to your moneylender
If you find it difficult to pay off your loan repayments for reasons like accidents, illness or legal situations, immediately seek out your moneylender to talk about restructuring your loan to fit your current status.
Moneylenders can adjust their loan repayment terms and their interest rate if you can prove that you cannot make your repayments in any way. When you opt for a revision of your repayment terms, it will appear in your credit history. However, this is a better alternative than letting the loan default on its own because defaulted transactions will disable you from seeking loans at all. It is also a permanent black mark in your credit history, so it must be avoided. Credit scores can be improved through several methods and it is possible to improve your score after one year of on-time repayments and clean transactions.
If you have a lot of debts, loans included, and you do not know how to get away from it, you can approach a credit counselor to help you find ways to remove these debts. Some moneylenders would also recommend you to seek these experts if you will be applying for a loan from their list to pay off your debts.
When you are in debt, it is crucial you act immediately into paying them off because the more you hold it off, the more expensive it becomes due to its interest rate. By doing any one of these steps (or doing them all), you will be able to reduce the damage these debts could do to your financial rating and security.