9 Strategies to Manage your Loan Repayments
A lot of people using credit have terrible stories to tell about their repayments. For example, some people pay their loans for many years and can go into retirement and they are still repaying their debts. Many are those that go through harassment from their lenders when they miss their EMIs (Equated monthly Installments). Others have their credit cards running to astronomical amounts due to late payment.
The people that get most frustrated are those with multiple loans. Missing one repayment affects their credit score making it very difficult for them to acquire a loan in the future. However, you can make it easier and take a different approach to manage your loan repayments effectively, which will ensure that you get relief from your debt or debts. Effective management will also reduce the interest charged on the loan for the tenure that you hold it. Here are 9 strategies that can help you out without putting a dent into your wallet:
1. Request for a suitable period to repay your loan
Depending on your annual income, request 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 30% to 50% installment of your income. If you find that the period the lender is giving you will not suit you, you can ask for a longer repayment period, which in turn will reduce the EMIs. 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 the high interest loans first
If you have multiple loans, make a list of all of them and prioritise the larger amounts. The higher loans have higher interest rates and they are the ones you should pay first. Starting repayments with the bigger loans instead of the smaller ones will help reduce the burden of interest from increasing and causing you problems during your loan tenure. As you do this, make sure you do not jeopardise repaying the other smaller loans.
3. Increase your repayments
If you have a rise in income let us say from shares, stock, assets or a pay rise, you can save your loan repayment situation by bumping up the EMI. Any increase in the EMI goes a long way in shortening your repayment period and interest rates. Give priority to the more costly loans when you have additional income and if you still have more left, tackle the less costly loans as well.
4. Consolidate your loans
If you have debt-consolidated loans, you can merge them into one loan. Many people do not go for consolidated loans unless they have no other option. The main reason for this is, in order to obtain a consolidated loan; you need to give collateral, which is usually your home. The loans are attractive because they have lower interest rates and longer repayment periods.
While consolidated loans may look attractive, you might end up paying more in the long term. You can merge all the loans to build up a debt in another place. However, this move requires careful and thorough budgeting and you have to know how you will pay the loans before you merge them. You also have to stick to the repayment plan otherwise; your loan will accrue more interest.
5. Always pay on time
Late or missed loan repayments can take a toll on your income and credit record. If you realise that you cannot pay your loan on time, address the issue by looking into your expenses. Cut down on spending to save the situation because rates go up every time you pay late, and this messes up your credit.
6. Keep track of your credit
Quite a number of people in the UK do not monitor their credit scores. They borrow money but do not bother to keep track on their credit maybe due to ignorance or too much work on their plate. It is very important to monitor your credit and debt habits especially if you hold more than one loan. The way you manage your loans will affect and influence your credit ratings and maybe the key to getting lower interest rates.
With a good credit score, you can get cheaper loans and reduce the interest rates on your initial loans. If you do not know how to do this, you can hire the services of an expert to guide you through it.
7. Lower the loan interest rates
Talk to your lender and find out if it is possible to reduce the loan rates. While doing this, check if you qualify for a low interest credit card. Another option is to find out if you can top up your loan with another cheaper one to offset the larger loan. Some of the financial institutions and banks in the country have hardship programs that allow borrowers to negotiate with them for better loan management approaches. It will not cost you anything or hurt you to try approaching your bank.
8. Look for a professional debt manager
If you try all ways to manage your debts unsuccessfully, the only other option is to seek help from a professional. Though it is cheaper to handle everything on your own, sometimes you can get overwhelmed. You can seek credit counselling for advice and assistance or reach out to a trusted debt management company. This however should be as a last resort when you have no other option or if you are too busy to handle your own debt affairs.
Debt management companies alleviate all the pressure you may have and for a fee, they will do everything on your behalf. Before you engage the services of a debt management team, make sure you read widely all the reviews about them so that you do not become a victim of fraud.
9. Wrapping it up
If you have a loan or multiple of them, do not risk making a mess of your credit record by paying late or missing timely payments. You need to have the full knowledge on how to manage your repayments because it may make a difference between being debt free and going bankrupt.
Timely repayments also allow you to get more loans from other places because your credit score remains good. This goes for all loans from personal, home, business and education loans among many others. Earn more, spend less and pay off your loans on time.