Working out a repayment plan

When applying for loan, many are only concerned with whether their application will be approved and how soon they can get hold of the money. How to come up with the funds to repay the loan is often overlooked. Some may believe that cutting back here and there will do the trick.

Making those monthly repayment commitments can be more difficult than you imagine. For example, if your monthly income is $20,000 and your monthly repayment is $5,000, you will have $5,000 less to spend in order to repay the loan. In reality, cutting back is not that easy. You will have to watch your spending carefully and make sure you put aside enough for your loan repayment throughout the entire loan period.

If you don’t repay on time, you will incur a late charge which will affect your credit report and credit score. If you fail to repay your debts, the lending institution will initiate a debt recovery procedure based on the loan agreement, and they may even take legal action. Therefore, when you take out a loan, you should also work out a plan to ensure you can repay on time, and that you can settle the debt within the loan period.

1. Pay off your debts first

The rule of thumb is to pay off the debts before you spend. Set the monthly repayment day right after your pay day so that your debts will always be paid first. You can set up a direct debit instruction with your bank to avoid missing any repayments. By doing so, you can avoid late payment penalty and leaving a bad record on your credit report.

2. Spend less and earn more

The key to making your monthly repayment is to spend less and earn more. Review your spending habits to see what expense items can be cut back. Adjust your monthly budget (budget planner) to come up with a plan. See if you can boost your income with some additional work.

3. Stick to the plan

After working out your budget, it is important to be disciplined about sticking to the plan. Carefully manage spending and focus on clearing your debt. It’s never a good idea to take on new debts before the old ones are paid off or else you will end up a dire debt situation.
Learn more: 6 ways to get out of debt