How To Manage Personal Loans Wisely
In this trying Covid-19 outbreak, I’m sure that a personal loan may seem like a tempting solution to our immediate financial concerns.
With job security and cash flow as the key financial stressors during the Covid-19 period, people are looking for extra cash in case they have to deal with uncertainty. With so many people being let off and some businesses being forced to shut down, it’s hard for some of us to even make ends meet, especially if we have a family to support and financial commitments to upkeep.
As such, personal loan queries are on the rise since Covid-19
While the government has been routinely providing cash payouts for those affected by Covid-19, it’s sometimes not quite enough for some of us. As such, some of us might turn to various channels such as banks for personal loans to further ease cash-flow issues or financial strains.
However, taking on additional debt, especially during a shaky time like the pandemic, can be a risky affair.
As such in the case that a personal loan is compulsory for the financial struggles you’re facing, we advise you to be responsible and do your due diligence to research the personal loan plans available so that you can make the best decision available. Only fill out a personal loan application after being 100% sure that’s what you REALLY need.
Five Things You Should Look Out For When Taking Out a Personal Loan:
1. A “Want” That You Can Save For
Itching to go on that trip to Taiwan immediately after travel bubbles are formed? If you haven’t saved sufficiently for the trip, a personal loan is not the answer. It’s never wise to take on debt to satisfy your “wants”. Instead, exercise self-discipline and set aside money to fund your trip. You could also consider getting a savings account with a higher interest rate to speed things up.
The same goes for other “wants” that you can save up for, such as that dream home theatre system or designer bag.
2. Investment with Poor ROI
In every investment, there is always a risk involved. As such, to be a savvy investor, do not pump in money that you can’t afford to lose. Especially with the current stock market situation, it’s tough to liquidate some of those assets for urgent cash flow without suffering a loss.
3. To Finance a Lifestyle Beyond Your Means
While we understand that splashing out an extravagant lifestyle just for Instagram in order to ‘fit in’ or to ‘avoid losing out’ is tempting, you should not be comprising your finances for this.
Recognise that some things are not worth the extra money lost and if you can’t afford it anymore, stop spending on high-end restaurant meals or ordering delivery everyday. Consider making homemade meals, taking public transport instead of booking rides and take a hiatus from your growing designer bag collection.
There’s simply no point putting on a facade of glitz and glam when you’re spiralling in debt in reality.
4. If There Are Better Alternatives Available
Personal loans are not necessary for starting a business, funding your education, renovating your new home, buying a car and more. There are other loans available that offer more competitive interest rates and are better tailored to suit these specific needs.
For example, there are car loans, renovation loans, education loans, scholarships and more available.
Especially in the case of debt, personal loans are most likely not the best option. Instead, you should seek advice from our debt counsellors at Double Ace Associates and check out our debt consolidation plans instead.
5. The Best Personal Loan to Get
The best personal loan to get is one that you can pay back comfortably. First, you’ll need to carefully consider the type of personal loan to get. Next, consider how much you can afford to borrow. Budget carefully and avoid taking out a personal loan that is way higher than your salary (eg. five times your salary) when in reality, you don’t need that much.
An important thing to note is that personal loans come with an interest that requires extra funds to pay as well - and this interest goes up with the amount you borrow.
Calculate how much you actually need to borrow, and how long is realistically comfortable for you to complete the loan repayments. Lastly, before taking out a personal loan, consider these three factors:
What are you taking out the personal loan for?
Can it wait?
If it’s just a want and not a need, rethink your decision.
Remember, a personal loan can also turn into debt when not managed properly. As such taking on a personal loan has to be a carefully thought-out decision, with all the calculations done.
An important thing to consider is your financial situation. Are you earning a steady income, or do you see fluctuations each month? If not, your unstable financial situation would make it difficult to estimate your monthly repayments and how much debt you can afford.
For more advice, do seek out our debt counsellors at Double Ace Associates.