Paying off personal loans is always a big burden. It keeps the borrower completely under the stress turning the daily life into hell. Especially managing the repayment at the end of the month can be quite a tough task. There are several applications available in the market which you can use in order to manage your finance in a better way.
Take Advantage of Technology:
Suppose if you are doing business in small-scale finance accounting can be a burden to tackle the loan that you lent. In such cases, you can approach some development companies to get small business software which can aid in some way. Sometimes it can even save you from a bigger loss.
Approaches to repayment:
Although repaying the debts seems to be a bigger burden there are certain strategies that you can consider to lessen the load. There are three different approaches to pay the loan. Let us discuss how each payment method works and later discuss in depth about the advantages that each one has.
The normal loan payment method includes paying all the loans at the same pace till the end of the debt. Consider that you have got a home loan, business loan and a vehicle loan. Let home loan be the highest amount and the vehicle loan be the least. In normal payment method, the person used to pay all the three loans parallel every month. Until the end of each of the amount, the person keeps paying it without any particular strategy.
This method was popularized by Dave Ramsey as the ‘debt snowball plan’ which seemed to be an effective method in paying the debt. This method is especially suitable in a situation where one lacks motivation. Sometimes when the loan amounts are building up heavily and there is no other go than working harder and harder; one may get completely collapsed. In such scenarios opting for this technique will be the right choice.
In this method, one has to pay the loan with the minimum balance first. One can finish the repayment of the vehicle loan then the business loan and finally the bigger one home loan. So that, when one completes the minimum one first he will feel better and get self-motivated. It would be as if reducing a certain amount of load from the total trouble, which will automatically drive them, that all loan can be paid in soon.
Payoff the costliest first is the slogan when it comes in the case of avalanche payment method. In this technique, the strategy follows as home loan first, followed by business loan and finally the vehicle loan. It is completely the inverse of the snowball payment method. By paying the highest debt first, one completely reduces the biggest burden in the load. So that his mind gets much relaxed than before and gives in a huge positivity into life. This method reduces the interest payment by a large scale.
Comparison of the methods:
Out of the three techniques, one can choose the one which suits his situation the best. But the normal payment of the loan seems to be very less effective when compared to the other two techniques. It leads the person to pay a heavy amount of interest in addition to the principal. Hence, the other two methods are suggested.
Choose the one that suits you the best:
Snowball technique can be followed if one feels that he must get some form of instant relief to keep himself motivated. Whereas the Avalanche method can be used if the person wants to really reduce a huge amount of trouble from his head. On the comparison between the snowball and the avalanche method, the avalanche method seems to be reducing the interest amount by some numbers. However, it is up to the situation to choose one among them. Let us explore more strategies.
Increase the repayments:
Suppose you got some kind of extra money from a source like a bonus in income; you can consider increasing the repayment amount by some amount. By doing so you can save yourself from paying more interest; for example paying an EMI at 5% you need to prolong it for long years taking it to 8% will lessen the years as well as the extra interest amount. If you settling multiple loans at the same time, consider paying the costliest one first with the extra amount available the Avalanche method discussed earlier.
Keep track of spending:
Sometimes when you make a closer look at certain expenditures things may seem to be unnecessary. Many finance tools are available online you can choose one from them and track your expenses. There are chances that you find better ideas of saving the money spent over lavish things. Look around you to find the availability of some unwanted good that can help you pay the loan amount. Refinancing can also aid you at some extent.