You may have opted to get
money to buy your dream home, or maybe you’ve just had your home loan approved.
Working out the total cost of the loan you are taking out, not just the amount
you are borrowing or how much you can afford to pay each month, but also
including interest payments, is crucial.
Here’s a handy guide here to
steer you in the right direction.
Make a list of your debts
You need to be able to
access all your debts and the amounts you owe in one place before you can come
up with a solution. An ideal way to do that is by using a debt
reduction spreadsheet. This list will include the
amount of the loan, the interest rate and the overall amount that you owe.
This statement will also
cover all of your debt, including your mortgage, from credit cards to personal
loans to student loans. If you owe the family and friends money, you should have
it on your list as well.
Prioritise your debt
After listing your debt, the
next step is to prioritise your debts, so that
you can determine which to pay first.
Most people advocate
starting from the smallest number to the highest because this will carry the
momentum to a head. Others would consider ranking debts from the highest to the
lowest interest rate because that would save you the most time.
Credit loans, like credit
cards, can have a much higher interest rate, and it’s usually better to start
there, but the main thing is to stick to the list after you make it. But it is
crucial that you work but a way of repaying your debts that not only considers
the most important debts to repay but that also works for you.
Consider the 20-30-50 Plan
Better than a standard budget, the 20-30-50 rule is a convenient, versatile way to keep your expenses accountable.
It involves committing 20%
of your income towards strengthening your finances. In this scenario, each
month, you might channel it into paying off your loans. Then share 30% for
personal things such as eating out and going to the movies, then finally, spend
50% on what’s necessary, such as rent and bills.
Track your expenses
It is easy to spend money
quickly because you are not carefully watching your investments. To avoid this,
track all costs, including those payable in cash. Luckily, most banking
apps nowadays allow you track every penny you’ve spent, and with
some, you can even receive alerts when your spend or receive money as well as
group similar transactions in one place for easy reviewing. This makes working
out where you are overspending much simpler.
Build up your savings
Once your debts have been
paid off, then you can work on setting up a savings account. This will help
keep you from falling back into debt. One of the best strategies you can use to
gain care of your money and to stop getting into debt is to set up an emergency fund.
When
you take out a personal loan, it is your responsibility to repay that loan
under the agreed-upon terms. Budgeting I a great wat to help you save the money
for your loan repayments to stop yourself from falling into debt.
