More than 65% of Canadians have taken out a personal loan to help them meet a financial need. In a pinch, these kinds of solutions can be completely game-changing and relieve a lot of stress.
Taking out the loan is only the first step of the process. After you’ve gotten through the financial hurdle, you’ll need to start paying it back. It’s important to stay in good financial standing by making responsible choices about your personal loan repayment.
Following these seven personal finance tips will help you stay on top of your plan. You’ll be able to improve your financial situation with just a few steps taken consistently.
1. Set a Specific Limit to Borrow
The first step to being a responsible borrower is to make smart decisions about what you borrow in the first place.
It’s tempting to take out the max amount or even just a little more than what you need to give yourself a little cushion or for more fun spending. Many get caught in the trap of thinking they’re already borrowing so it can’t hurt to take a little extra.
But this can end up costing you much more than you think in the end. It also puts you in a more irresponsible mindset that you’ll have to work hard to overcome.
2. Create a Budget
After you’ve taken out your loan and have used those funds for the immediate need, it’s time to reevaluate your budget to add in a loan repayment plan. This exercise is a great way to get a handle on where your income is going and to see how far it can be stretched.
As you’re working on your budget make sure to be realistic about your spending habits. Taking the time to go through this exercise does you no good if you’re never going to follow through with the plan.
Make sure to include every spending category, from groceries to subscriptions, it all needs to be accounted for to set a clear budget.
3. Prioritize Loan Payments
Going through your budget is the perfect time to make sure you’re practicing responsible spending. Your top priority should be making sure all of your bills are paid, including your loan payment.
When you set these as a priority, you’ll make progress on the total amount owed much quicker.
Sometimes it can be difficult to find those funds in your monthly income and regular spending habits. That means you may have to make some sacrifices for a while to ensure those payments are made. Consider what could be cut out, either for a time or indefinitely, like unused subscriptions or regular eating out.
The freedom you’ll feel once you’ve finished paying off your loan will be worth it.
4. Never Miss a Due Date
In order to stay on top of your loan repayment plan, you must commit to never missing a due date. Paying on time, every time will not only help you towards your goal now but will also help you avoid any negative consequences.
Making late payments (for any type of bill) can have a big impact on your credit score. Borrowers will see those lost points and be less likely to lend to you in the future. That means it could be harder to get the house or car you’ve been looking at and dreaming of.
It’s better to be safe than sorry and set a reminder to always pay early!
5. Consolidate Loan Amounts
For those borrowers who have several personal loans out at once, a helpful money management tool to look into is consolidating your loans. This means you take out a larger loan that will pay off all the smaller loans at the same time.
So instead of making several payments each month and dealing with all of the different rates and fees, you’ll only have one payment due.
This can be great for some scenarios and not as great for others, depending on the specifics of your debt and the available consolidation packages. But it’s worth the time to look into it if you feel like you’re in way over your head.
6. Make Future Financial Goals
Responsible spending and quick loan repayment aren’t just about getting through this one financial hurdle only to return to your old habits. It’s a great stepping stone to creating a more stable financial future.
As you’re working towards this goal, it’s a good idea to set future goals as well.
You can utilize the momentum and motivation you’ve gained through such dedicated planning and spending to create the future you want. Consider making your goals focus on things like increasing your savings account or getting into investing that will only continue to benefit you through the years.
7. Monitor Your Credit Score
Debt, even if necessary like a personal loan for an emergency, can have a negative impact on your credit score. That we know can make other financial purchases in the future more difficult.
One of the best things you can do is to regularly monitor your credit score for any changes.
Just because you have debt doesn’t mean you can’t make other choices that will improve your credit score. It’s all about balance and making sure you’re being responsible. The more informed you are, the better you’ll be able to navigate keeping (or improving) your credit score for the future.
Personal Finance Tips Everyone Should Follow
Creating a solid action plan around these personal finance tips allows you to take control of your money situation. Instead of constantly being stressed and wondering if you’re making the right choices, you’ll feel confident knowing you are doing all you can.
It’s helpful to make some of these choices before you even take out your personal loan. This way you don’t get overwhelmed after the fact and start off on the wrong foot.
Our team of financial experts can help you figure out which loan is best for you and help you get the approval you need to move forward. If you’re interested in learning more, contact us today!