While it’s pretty straightforward to apply personal loans in Singapore, managing them is a different ball game. It’s not uncommon for borrowers to squander their loans in one weekend, then struggle to raise monthly payments after that. But this doesn’t have to be you. Keep reading to find out how to best utilise personal loans and some practical strategies to help you avert defaulting.
- Never take personal loans if you don’t need them
Are you familiar with that low feeling that engulfs someone after wasting money? This feeling amplifies when it’s borrowed cash. Regardless, many Singaporeans still fall into the trap of taking personal loans for the wrong reasons. Yet, most of them are unsecured loans, meaning that they’re expensive in the long run. In this case, wrong reasons refer to fun-laden activities without an earning potential. For instance, applying for an instant loan to purchase a pair of designer shoes or purchase a concert ticket are both terrible ideas. According to financial experts, the only reasons you should apply for a loan include:
- To cover a serious financial emergency, e.g. unforeseen medical expenses, major home and car repairs, and a job loss.
- To invest in an income-generating activity like a business
- To consolidate credit card debt
- To pay off high-interest debt
- To finance a major life event
- Track your Personal loan Spending
Responsible borrowing transcends approaching lenders and signing loan application forms. After you successfully apply personal loans and the lender wires the money into your account, it’s imperative that you allocate these funds to the projects that pushed you to borrow in the first place. If you intended to finance your wedding, shop for the best deals and skip exorbitant venues. Also, be careful not to get distracted by non-wedding-related needs that might exhaust your cash.
If possible, create a spreadsheet that captures the overall budget that you’re working with. Then whenever you make a transaction that chips into your loan, log it into the spreadsheet. Doing so will help breed a sense of accountability that will carry you through the life of your loan.
- Consider your Budget to Determine the Best Payment Schedule
How much wiggle room does your budget allow? This question should guide you into opting for practical, non-suppressive loan terms. It turns out personal loans impose an additional strain on your monthly expenses. Without a good plan, you risk lagging behind in your monthly payments and hurting your credit score as a result. Fortunately, budgeting helps you determine the best repayment plan based on your income and cash flow. It also enables you to assess what remains after paying your monthly instalments.
Feeling stuck? Start by writing down your monthly income and subtracting financial obligations like rent, school fees, utilities, car expenses, etc. If your obligations currently swamp your monthly salary, find a way to shrink your costs or carve out an extra income stream that will support your debt obligations.
- Prioritise timely payments
Ready to start paying off your personal loan? Since many lenders space out the repayment period between 6 months and 7 years, you must ensure you’re done within this time frame. This is only possible by paying on time, hence avoiding additional fees and penalties. Also, keep in mind that a shorter repayment period saves you from paying extra interest. Some great tips to help you make timely payments towards personal loans include:
- Aim for at least one extra payment per year
- Do not restrict yourself to minimum payments
- Consider the option of making bi-weekly payments instead of monthly
- Contact your lender about refinancing options
- Find Extra Income Sources
We all know that unsecured loans can be expensive, especially if you let them spiral over long periods. To shorten the length of your loan, consider creating side hustles to free up your budget. Even a home-based business that nets you $150 every month will reduce your loan obligations by a huge margin.
Regain sanity over your finances by managing both secure and unsecured loans using the tips above. These tips will help you avoid unnecessary expenses and be more responsible with your loan spending and payments. Good luck!