It is common for people to have multiple loans under their belt at the same time. A study found that the majority of people that have borrowed a home loan also had a car loan.
Many people also take education loans for their kids and for medical emergencies too.
Falling into a debt trap is easy when you have been laden with so many loans leading to a financial disaster if not managed properly.
However, there are some tips and tricks that you can follow to manage these multiple loans to ease financial pressure.
The first step of managing multiple loans is to ensure that your loan amount for a month should not exceed your budget and block your obligations list.
- You need to allocate not more than 40% of your budget to your loans as it will jeopardize your other expenses.
- Setting a budget according to your income and following that can be a good step in managing multiple loans.
- You need to devote a percentage of your income in such a manner that your loan can waive off fast while allowing you to manage your other expenses as well.
- An online term loan calculator can come in handy if you are not able to properly allocate a part of your income towards the loan section.
Your mental well-being is imperative as multiple loans can strain you mentally and drain your energy, so you will not be able to cope with the pressure and will dive deeper into the debt trap.
- Preparing yourself mentally, will boost your morale and help you clear your debt as soon as possible.
Repaying your debt timely
A crucial step that needs no introduction is trying to repay your debt in a timely manner, and the maximum amount you can pay towards each debt to reduce it is appropriate.
- The most imperative factor that suffers if you are not timing your bills is your credit score which will hamper your future prospect of borrowing a loan as the lender will find you incapable of repaying that loan.
- The worst step that you can take to repay a loan is to borrow another loan. This step can lead you to a debt trap you want to escape badly.
- If you cannot repay the loan at the set date, you can contact your lender and tell him beforehand so your credit score cannot suffer and you can have an extended period to pay that loan.
- Avoiding the payment date can lead to extra interest that will add to an enormous debt you cannot repay.
Timing your repayment is essential as it can create a labyrinth of debt that you would not escape easily.
Prioritizing personal loans over credit card bills
An important factor to consider when prioritizing your repayment of multiple loans is trying to clear your personal loans before your credit card bills.
- Prioritizing your personal loans is important as being a defaulter in personal loans can depreciate your credit score more than you can fathom.
- Being a defaulter can decrease your credit score up to 50.
- This decrease in your credit score will haunt you in the future if you require another loan, as your credit history will be blemished.
- As compared to credit card bill payment delays, personal loans have a tighter grip on your credit score.
Do not ignore your credit card bills but try to prioritize your personal loan repayment before them.
Debt Consolidation is one of the best ways if you are struggling to repay multiple loans.
- Consolidating your debt means merging your multiple loans with a single one.
- Debt Consolidation will make it easier to repay your loans as you do not have to focus on repaying multiple loans but a single loan.
- It will also help you mentally as you can focus on repaying a single loan compared to multiple ones.
However, there are several factors to know before opting for debt consolidation.
- Debt Consolidation is best if you get a lower interest rate than the debts you are consolidating.
- It can also help you in your debt-free journey if the monthly payments are lesser than the multiple debts that you owe.
- The extra money saved can help you in repaying your loans or help you in building an emergency fund.
Multiple loans can be quite a hassle to deal with as they can drain you mentally and will hamper you physically also. Managing these multiple loans can be easier if you follow the steps above.