There are many reasons why people take out personal loans. They can be used to consolidate debt, pay off credit cards, remodel at home, pay for a wedding, enjoy a holiday, pay for medical bills, buy a car, or any other myriad of things. There are plenty of good reasons to apply for a personal loan, but it’s important not to forget that it’s real money and you will have to repay it! Use a personal loan responsibly and make a plan for paying it off with these ten tips.
1. Sort out the basics
A good starting point to paying off debt is to know how much you owe and to which providers. This can be unpleasant if you have multiple loans, but it’s necessary if you want to track your debt and better understand how to pay it off. What was your personal loan worth? What are the interest rates, fees and charges? Know exactly what you’re in for and you can plan for it. Use this personal loan calculator to give yourself more of an idea.
2. Create a budget
Now that you know how much money you owe, you can weigh this against how much money you have coming in and how much you spend each month. To do this, you’ll need to write down:
Don’t forget to split the cost of some of your big-ticket annual items like car insurance, home and contents insurance and holidays. The trick is to always add 10% to your final budget for things you haven’t considered or for emergency repairs.
3. Identify where you can cut down
With your budget in hand, you should have an idea as to how much money you have leftover (if any). Your next step should be to identify ways you can cut down on spending so that what you have leftover is increased each month. Knocking out a few small expenses can make a surprising amount of difference!
With your revised ‘leftover’ amount, determine how much you are comfortable paying towards your debt. Remember, the faster you pay off your loan, the more money you save long-term.
4. Pay non-essentials with cash
Knowing how much you spend on non-essential items each week allows you to withdraw cash for spending. It’s a lot harder to part with cash than it is to tap a credit card, and paying with cash means seeing exactly where your dollars go. Each week, try to withdraw slightly less and see if you can stay within your cash budget.
5. Make lists
When you’re heading to the supermarket or shopping centre, make a list of shopping so that you refrain from impulse buys. Making a list with exactly what you need means you won’t end up at the checkout with more than you bargained for. Even better, shop online for what’s on your list and avoid temptation altogether.
6. Keep your receipts
A paper trail of your spending can be a slap in the face that nobody wants, but it can help you to further reconsider your spending. Keeping receipts means everything is on record for your perusal.
7. Pay debt on time
Time management and debt management go hand-in-hand, and paying your debt on time will prevent you from accumulating additional expenses from late fees or interest charges. Consider setting up a reminder for when payments are due or a direct debit that ensures your debt is paid when it should be. Late payments can also affect your credit report, making time management and debt management doubly important.
8. Pay more than the minimum amount
You typically get two options when repaying debt – pay the full amount you owe or make the minimum repayments. Minimum repayments can be tempting, but keep in mind that you can still incur interest on the balance that’s leftover. If you pay what you owe, you might not pay interest at all.
9. Make extra repayments when you can
Making extra repayments when you’ve got the money to spare can be a game-changer for your debt. Depending on what you owe, you can save thousands. Look at the conditions of your loan, however, as some loans come with charges for paying the debt off early. Weigh up this charge with the long-term benefit. At Nimble, we never charge you for paying your loan off early!
10. Always be one payment ahead
When you receive your loan, the first thing you should do is make a payment straight away. It doesn’t matter that you don’t have a payment due – you’re now one payment ahead and that will cover you in the unfortunate event payment or direct debit doesn’t occur. Mistakes happen and protecting yourself in this way can prevent you from falling in arrears and potentially having your credit rating affected.
Receiving approval for a personal loan can take the pressure off your finances, but to ensure the pressure stays off, you need to know what to expect and how to manage your repayments. We hope these tips help!
Disclaimer: Please note this content is provided as general information only and does not take into account your objectives, financial situations or needs. For advice tailored to your financial situation, it is advised that you seek guidance from an accountant or financial advisor. The above post refers to application software (“App, Apps”) that is not affiliated or associated with Nimble. We do not have any control or responsibility over the content of the Apps. Use of the Apps may be subject to further terms and conditions imposed by the App provider, the owner of the mobile operating system and/or other related parties. The above links belong to a variety of websites and not Nimble, so clicking on, and using them, will take you away from Nimble’s website meaning we’ve got no control or responsibility over the content. Nimble does not endorse and is not affiliated or associated in any way whatsoever to the businesses named in this blog post. The information contained in this article is correct at the date of publication.