Many financial advisors will tell you to avoid incurring debt as much as possible. However, some of us are left with no better choice. Aside from relieving you from financial burdens, a personal loan can be a catalyst towards success.
But whatever it is going to be used for, a loan is a financial obligation that you need to handle responsibly. To pay off your personal loan in full and on time, take note of the following tips:
1. Borrow only what you can pay off
Whether it’s a loan for debt consolidation or a personal loan, don’t bite off more than you can chew. Borrow only what you need and what you can pay off with your current income. Otherwise, you may end up with a debt that is too heavy and hard to pay off, which can increase the chances of you making late payments and incurring penalty fees.
2. Stick to a budget
Having a budget is one of the best ways to manage your finances, whether you have a debt to pay or not. But when you take out a personal loan, setting a budget and sticking to it becomes more important.
List your monthly expenses, starting with the basics, such as food, rent, savings, and transportation. Then, factor your loan repayments into the budget and see which categories you can take the money from to ensure that you make your repayments on time. After this, track your spending using financial apps to make sure you stick to the budget.
3. Pay on time
Aside from incurring late fees and penalties, making late payments can also affect your credit history. To avoid this, set aside the money for your repayments once you receive your paycheck and deposit the payment as soon as you can to avoid spending it carelessly. You can also make repayment easier by setting up an auto-debit arrangement with your lender, which will take money from your account every month automatically.
4. Avoid new debt
If you’re not in a position to borrow more money, avoid incurring new debt until you pay off your personal loan. Having multiple debts to pay off is not only stressful; your high debt-to-income ratio can also affect your credit score.
5. Pay more than the minimum
It is advisable to pay more than the minimum repayment each month in order to pay off your personal loan faster. So, if you have extra money from a gift or a bonus, add it to your loan repayment whenever you can.
6. Consolidate debts
If you’re paying more than one loan other than your personal loan, consider getting a debt consolidation loan. This type of loan helps you combine your debts into a single loan, making repayments simpler and more manageable.
Having debs that are constantly looming over you can be stressful, to say the least. That said, before you even take out a personal loan, be prepared to make these adjustments to your financial habits so that the repayment will be easier and faster.