Having several loans that you must pay for on a monthly basis can quickly eat through your paycheck and may even bring you to the point where you are unable to pay for your regular expenses and make the bank payments as well. This issue can be further complicated when prices change or salaries are reduced.
If you are having difficulties in keeping up with the monthly payments that you must make there is always the option of going online and using a money-lending service in order to borrow more. This, however, will not resolve the issue, only “buy” more time.
The best course of action is to go to your local bank and try to renegotiate your previous arrangements. Here are the main things that you can do to lower the cost of your personal loans:
Use your savings in order to repay loans
Having fewer loan means that you will have less to worry about. This means that your first objective should be to use any savings that you may have in order to repay all outstanding loans that you may have.
Generally speaking, you should always focus on paying off the most expensive loans that you have and only then moving to repay more affordable ones. However, before you do this, check to see that the charges for early repayment are not too high.
Keep in mind that the purpose of this step is not to repay all of your loans and resolve the entire issue, but to help you eliminate the ones that would cost you the most money in the long run. Once you complete this step and cut some of your monthly bank expenses, it is time to deal with the loans that are left.
Switch to a short-term loan or one that has a low interest
If you have multiple loans that you need to repay, one easy way to do this is by using other loans in order to repay them. In other words, try to switch to a type of loan that is less expensive in the long run.
Depending on what your current financial strength may be, you have to choose between shifting to:
- A short-term loan that is faster to repay– These will increase the amount of money that you have to pay on a monthly basis, but the overall cost of the loan will be smaller. This option is usually preferred if you expect to have large financial difficulties in the foreseeable future;
- A loan that has a lower interest rate – Most banks will allow you to switch to a loan that has a cheaper interest rate. Although in some situations you may also be required to lengthen the duration of the loan, you will still pay less in the long run;
Please keep in mind that the effectiveness of these strategies may vary from one bank to another. You should always the types of loans that your local bank is offering before making any of the changes mentioned in this article.
It is usually best to go to the bank and ask for professional help in order to decide what type of loans you should switch to.
As a word of caution, look out for the set-up costs of the new loans, when doing the math in order to figure out the best course of action. These will be included in the ARP.
Lastly, when it comes to switching to different types of loans, plan ahead and make sure that you can afford the more expensive monthly payments before making the transition.
Consider consolidating your debts
Some banks may directly present some of the loans that they offer as Debt Consolidation Loans. These allow you to merge several loans into one. Making this switch means that you will have to make monthly payments only for this new one. The interest and monthly payments for debt consolidation loans are usually calculated based on what loans you are merging together. This can make this option great if you first manage to repay your more expensive loans using your savings.
Keep in mind that not all banks offer these. While they may seem great in order to simplify your bank payment scheme, they can be considerably more dangerous than other types of loans. This is mostly due to the fact that debt consolidation loans are secured against the client’s home, making it extremely important to first ensure that you will be able to make the monthly payments of this loan before fusing the other ones together.
The best way to decrease the amount of money that you spend on the loans that you’ve taken out is to decrease the number of loans. Go through the options that we’ve presented above and chosen the best one for you.