8 Tips to Manage Your Loans
Loans should be repaid in a timely manner to avoid more debt. Repaying a loan requires careful management of personal finances. Read more on IIFL.
Everyone takes a loan at least once in their life to fulfill their dreams or needs. It might be a business loan, personal loan, car loan, home loan or just about any other loan that satisfies their financial needs at a particular point of time. A loan is debt and debt should be managed diligently.
Loans should be repaid in a timely manner to avoid more debt. Many people are unaware of this fact and often tend to slip on repayments. Repaying a loan requires careful management of personal finances and a certain level of discipline to make payment on time.
Here are some tips to manage loans diligently:
Consolidating loans is a good idea when there are many loans. Paying off many loans through one single loan and repaying that loan will reduce the financial strain. For example, if a person has many credit cards or too many loans like personal or credit card loans, he/she can either opt for balance transfer or close the lesser-used credit cards by repaying its dues. In the end, you will only have to pay off a single loan.
Know Your Credit Score:
Many people are not aware of the fact that defaulting on repayments can affect their credit score very severely and label them a credit risk. The transactions carried out by you reflects on your credit score. Regular and prompt repayments help in a higher credit score whereas defaults result in lower credit score.
Following a strict financial discipline can assist you in paying off the debts earlier. Like watching your spending habits, shying away from new loans, and controlling impulse purchases are some of the ways through which you can manage the debts very easily.
Create A Schedule:
When repaying loans, it is useful to set an alert for every payment in your smartphone or computer. Late payments incur late fees, and if you miss multiple payments, your credit score will be affected. Save your payment dates in your smartphone and set an alert to remind you at least three or four days before the payment. In case, you miss the payment, donâ€™t wait till the next due date, pay the outstanding as soon as you remember or as soon as you garner the necessary funds. There are many apps available to help you prioritize your financials and pay your debt on time.
Bargain Your Rates:
There are many financial companies offering competitive interest rates. Transfer your loan to another financial institution that charges a lower interest rate than the current bank. Bargaining with the existing financial institution for a lower interest rate based on the credit score can also help in effective loan management.
Rank Your Debt:
Draw up a list of your debts and rank them in the order you want to pay it off. Usually, paying off a credit card is a prudent thing to do as it comes with higher interest rates than other loans. If you have multiple credit cards, pay off the card that comes with the highest interest rate as it is one that costs more money. In case, you are not able to pay the full amount in one go, then at least pay the minimum amount. However, only paying minimum amount does not mean your loan is decreasing and when you keep missing payments, you will become a defaulter.
Whenever there is surplus cash, it is prudent to pay off those loans first. Closing loans faster or paying more than the stipulated Equated Monthly Installments(EMI) will reduce the tenure of the loan and lessen the interest payments.
Prepare a budget to keep track of your monthly expenses, and it helps you to know whether you have enough funds for the next month bills. Plan in advance for the monthly budget, as it helps you identify any deficit and enables you to take corrective action. In the case of surplus in your budget, pay extra towards your loan so that you can close your loan faster.
Availing a loan is unavoidable in an individualâ€™s life, and it might even get difficult at times to meet the payments. You might feel that getting out of debt is not possible, but that is not the case. By making a few adjustments in your lifestyle and sticking to fiscal discipline, you can pay off your loans faster and be in a better financial position in the future.