Taking out a personal loan can be a scary for some individuals. Regardless of the interest being charged, both high and low, a personal loan is a debt that might burden your finances. This can create obstacles to your journey to attaining financial freedom. Even though taking loans is often the last option on anyone’s mind, there are situations that do call for the urgent need for cash that personal loan offer.
Often times people take loans for different reasons such as to finance a business project and for the need of a home. However, once received, a lot of borrowers are troubled by the matter of managing their monthly loan repayments.
Some borrowers have shocking stories to tell regarding loans stretched out till their retirement, late EMI’s, heavy penalties and even the harassing calls received from their moneylenders. The one reason that makes people face difficulties when repaying their loans is a lack of planning their finances.
By taking a closer look at the outflow planning and financial health of your money will help you settle the matter of personal loan repayments. When you have recently taken out a loan and you have a difficult time managing them, below is a short guide that will help you manage the repayment of your personal loan.
Prepare A Monthly Budget
Having a working budget is always useful as you work towards gaining financial freedom. Drawing up a monthly budget will greatly ease your loan repayment plan. Make sure you list down your expenses for the month as well as your income, including small details of everywhere your money goes. This will come in handy as you analyze on areas that you need to cut back on to help pay back your loan much faster. Additionally, you will get an idea regarding your savings and salary that will assist you in prioritizing your loan repayments.
A key point to take note of is ensuring that your debt commitments for the month do not go above 35% of the gross monthly earnings. Always be aware of this every time you are requesting for loans as it can be useful.
Prioritise Settlement Of The High-Interest Loans
Although the repayment of a single loan is a lot easier, lots of Singaporeans face some difficulties in managing several loans. The reason for this is that many people fail to rank the repayment of their loan even after they have drawn up a budget. The reality that you hold a debt is certainly a burden, but what adds-on the pressure are the interests charged. The higher the interests charged, the more the pressure to repay the debt. Reducing the total interests being paid on all your loans can help ease up the weight of your finances.
A helpful strategy is the use of a debt avalanche. This strategy works by you putting a maximum amount against the high-interest loans without affecting the repayments of the other loans. You will first need to list all your loans along with their interests. Then allocate the highest amount of the loan that has the highest interest such as credit card bills. Once that is cleared, move to the next using the same strategy. This strategy will help simplify debt management for you.
Increase Your Regular Repayment Amount
If you have recently received a pay rise or a fat bonus you can use it to pay off some of your debts. Gains will come in a variety of ways such as bonuses, pay hikes, profits on some of your investments, tax refunds, etc. putting some of your financial gains to repay debts can help ease your financial obligations.
Every time you have extra cash to spare, contact your moneylender asking whether you can increase your instalment. If you have accumulated a good amount, you can even consider paying off in a lump sum. However, ensure that no penalty charges are attached to your early payment.
A few loans may have conditions such as penalties on increased or early repayments, therefore be giving an advanced notice ahead of increasing regular payments. Make sure you confirm with your licensed moneylender during the contract signing phase.
Use Schemes And Investments For Debt Commitments
Debts are divided into two; bad and good debts. Debts with a futuristic monetary gain or that pay you are good. But debts that don’t bring gains to your economic value are in fact a burden. Debts like car loans and credit card payments are bad and only add a load on your financial commitments. Although using other investments or your retirement savings is typically the last choice, they might be helpful if your debts go beyond and you are near insolvency.
Furthermore, Singapore provides some schemes such as Debt Management Plan, Debt Consolidation Plan, and Debt Repayment Plan to individuals who are struggling with repaying their debts. While DRP and DMP help you to repay your amount outstanding, DCP merges all your debts owed from different money lending institutions into a single debt to help you reduce your monthly commitments. Be sure to read through the conditions and terms of your investments along with those of the schemes to ensure you get the right one.
Adjust Your Lifestyle To Help Repay On Time
Expenses and your spending practices can affect the ease with which you repay your loans. Besides the above-mentioned guidelines, there are other habits that will ease your debt obligations and bring you closer to achieving financial freedom.
Check your spending practice to identify how you often use any extra cash you get. If you, however, splash your money aimlessly instead of putting it down on clearing debt then you could do with changing your lifestyle. Work towards trimming your expenses such as movies, shopping, and dinners, so that you are able to repay your debts faster.
Balanced financial habits are great, but ensure you prioritize your obligation in alignment with your goals. By being aware of these strategies it will be easy for you to manage the process of repaying your personal loans. Maintain balance is the answer. Adopting healthy financial practices will guarantee you become debt-free and achieve financial freedom