Often, life happens and gives you sudden circumstances that demand extra money. One way to get this cash is to take loans from fast money lenders. You may even apply for more than one loan if you need to.
However paying off multiple loans can be daunting. Even if it’s a challenge, the good news is there are solutions. Here are three ways to plan your loans so they don’t put a serious strain on your budget.
Avoid taking on loans you cannot repay
Always stand by this rule of thumb: If you know you cannot afford to repay a loan, just don’t. Walk away from it. Find a different loan you can afford to pay back. This way, you are much less likely to deal with a mountain of debt. Before you decide to take out a loan, plan ahead. First, find out how much you need down to the last cent. Then, choose a loan that will cover that amount with a small buffer.
Do not take out a loan with a principal much higher than what you actually need. If you do, you will have a bigger loan to repay. This is unnecessary, and it will put lots of stress on your finances.
Choose loans with reasonable tenures
Different loan products have different repayment periods. Some let you repay small amounts for a long time, while others require you to pay down larger amounts over a shorter time. You’d want loans with longer repayment periods to lessen the burden on your budget.
Watch out for interest rates, though. Loans with longer tenures commonly have higher interest rates than those with shorter tenures. Shop around and find a loan with the right balance of tenure and interest rate. You would not want to have a loan that will cost you more in the long run.
Designate a portion of your budget for loan repayment
To effectively manage your debts, you must always consider the cost of repayments in your budget. Include those monthly payments in your list of financial priorities. If you do this, you will not constantly worry about missing payments or not having enough money for them.
An added advantage of this practice is maintaining a healthy credit score. Missing payments and paying late will take a toll on your credit rating. But if you pay on time each month, and you pay the full amount of what’s due, your credit rating will stay where it is. It can even go up if you build a habit of paying on time.
If you’re wondering how much of your budget to set aside, around 20% of your monthly income is a good number. You can even combine this portion with your savings. In other words, here is what you will do:
- Set aside 20% of what you earn each month.
- Take care of the monthly loan repayments first.
- Anything that’s left goes straight to your savings account.
Conclusion:
Treating loans wisely and carefully can lead to healthy financial outcomes. Follow the three principles here, and paying back your loans will be a lot less stressful. Even if you have loans from a Toa Payoh money lender and other lenders, you can still avoid drowning in a sea of debt.
