Loan repayment can be financially straining, especially if you did not plan your borrowing well enough. Even if you borrowed from a licensed money lender in SG, repayments can stress you out if you apply the wrong strategies. Some of these can be hard to avoid, too.
What are these repayment mistakes that borrowers often make? Here are five of them to avoid.
Settling for the minimum payment every month
Every loan has a minimum payment amount per month. However, this should not be the only amount you pay. Instead, you should aim to pay the recommended monthly due. This way, you will not prolong your loan and end up paying more interest.
Minimum payments are appealing because they are much cheaper, especially in months when your finances are tight. Paying the minimum also gives you a false sense of security: Because you paid the minimum, you would think the lender won’t come after you. But the truth is, interest will come after you. The longer it takes for you to pay off the principal amount, the more interest you will pay.
Taking out a loan to pay for a previous loan
This practise will only cause you to accumulate debt, and it may lead to financial ruin. As much as possible, avoid taking out additional loans to pay for an outstanding loan. Instead, choose loans that you are sure you can repay in full each month. If the monthly repayments are too much for your income, consider other credit options.
Taking out loans for unnecessary expenses
If you want to drive a nice car, go on fancy holidays, and own lots of name-brand stuff, make sure you can actually afford them. If you use loans or credit to purchase these things, you are well on your way to financial trouble.
Remember, these expensive items are often not assets, but liabilities. They do not earn money; instead, they take away money from you. All because you want to look rich, cool, or want to keep up with your wealthier peers.
Not prioritising high-interest loans
If you don’t pay off high-interest loans first, the interest will cost you more. The sooner you get rid of high-interest loans, the better. You will pay less in interest.
Your low-interest loans can wait. The interest they accrue will not cost you as much as when you pay down the high-interest loans last.
Hasty loan consolidations
Loan consolidation may be a good idea, as you only pay for one loan instead of many. But if you do not plan this properly, you will end up paying more interest, and you may even have to pay a higher total amount than you can afford. You may even accumulate bigger debt than before you consolidated your loans.
Conclusion
Debt repayment takes deliberate thought and planning. Otherwise, you will end up wasting a lot of money on interest. You will also be in debt for longer periods than necessary. So plan your borrowing well, including how you will repay each loan.
