9 Strategies to Manage your Loan Repayments
Missing one loan/credit card repayment can impact your credit score, making it more difficult for you to acquire a loan/credit in the future.
However, there are ways to approach and manage your repayments effectively, which will ensure that you’re on top of the debt you owe. If you’re savvy enough – effective management can also work towards reducing the interest charged on your personal loan for the tenure that you hold it.
Here are 9 strategies that can help you out without putting a dent in your wallet:
1. Request for a Suitable Period to Repay Your Loan
Depending on your annual income, ask the lender for a suitable prepayment period that will not put too much pressure on your cash flow. In many cases, lenders will ask you to pay a 30% to 50% installment of your income.
If you find that the period the lender is offering doesn’t suit you, then ask for a longer repayment period. This will not only strengthen your cash flow, but it will give you a better chance of repaying the loan from any additional funds that you accumulate without worrying about any prepayment charges.
2. Target High Interest Loans First
If you have multiple loans, make a list of all of them and prioritise the larger amounts. Normally, long term loans have a higher amount of interest on them, so they’re the ones you should look to pay off first if you can.
By adding additional repayments to your larger loans will help reduce the overall interest and tenure. Obviously this isn’t affordable for everyone so make sure this doesn’t jeopardise repaying your smaller loans.
3. Increase Your Repayments
If you have an increase in income, let us say from shares, stock, assets or a pay rise, bumping up your monthly repayments is a wise move.
It’s always difficult to not spend this money on other things. However, if you can adopt the mindset of – ‘if it’s not a necessity, I don’t need it’ this’ll free up priority to increase your repayments and pay off your loan quicker.
4. Consolidate Your Loans
If a debt-consolidated loan makes sense financially, then we’d suggest you look into this option. You don’t always need to provide collateral for these loans (car/house etc.) – this depends on the debt value and your loan affordability, essentially. This option is attractive as it normally means a lower interest rate against what you’re currently paying out on your loans.
Basically, you can merge all your current loans into one overall payment, hopefully saving you interest and making it more manageable.
5. Always Pay on Time
Late or missed loan repayments can take a toll on your income and credit record. If you come to the realisation that you cannot pay your loan on time, address the issue by looking into your expenses.
Cut down on certain spending to save this situation from happening as it leads to higher rates in the future, it messes up your credit rating and you’re likely to get charged.
6. Keep Track of Your Credit
Quite a lot of people in the UK do not monitor their credit scores. It is very important to monitor your credit and debt, especially if you hold more than one loan.
The way you manage your loans will affect and influence your credit rating. With a good/excellent credit score, you’ll be able to get cheaper loans and will deem you worthy in pretty much any line of credit.
7. Lower the Loan Interest Rates
Talk to your lender and find out if it is possible to reduce your loan rates. While doing this, check if you qualify for a lower interest credit card. Another option is to find out if you can top up your loan with a cheaper one to offset the current loan.
Some of the financial institutions and banks in the UK have hardship programs that allow borrowers to negotiate with them for better loan management approaches. It will not cost you anything or hurt your credit score by approaching your current loan provider.
8. Look for a Professional Debt Agency
If you try every way possible to manage your debts but are still unsuccessful, the best form of action would be to seek help from a professional. You can seek credit/debt advice from companies like citizens advice or even assistance with a trusted debt management company. This, however, should be seen as a last resort when you have no other option.
Debt management companies can alleviate all the pressure you have – they will go through the best options to suit your circumstances.
9. The Main Takeaways From Above:
- Don’t put your credit score at risk by paying late or missing any of your repayments.
- Equip yourself with the knowledge on how to manage your debt and repayments effectively, as it could make a difference between being debt free and going bankrupt.
- Can you afford to consolidate your current loans?
- If you earn more, try to spend less and pay off your loans on time!
- See if you can get a better loan deal part-way through your term (with your current provider or a new one).