You’ve probably heard and read countless warnings against taking out loans. Sure, there are many people whose lives have been ruined forever because of debt. Especially in the Philippines, ‘utang’ is viewed in a negative light, and you were probably raised to think that debt is to be avoided at all costs.
It’s time to change this mindset. There’s nothing wrong about borrowing money when you’re in a pinch. At the end of the day, it’s the management of loans that counts. As long as you are able to repay what you borrow without sinking deeper into debt, you’re good,
To help you out, here are five smart ways to manage your loans.
Borrow only what you can pay back
I know this sounds ironic. The reason you’re borrowing money is because you don’t have any, right? However, you must only take out a loan you are able to pay in the future. You have to plan where to get money for repayment. Otherwise, you’ll end up in a terrifying cycle of debt and never-ending interest all your life.
Settle your debts as soon as you can
Even though some lenders are flexible with your repayment structure, the simplest way to get out of debt is to return what you borrowed as soon as you have the money. Note, however, that banks will charge you a pre-termination fee if you wish to settle your debt earlier than agreed upon in your contract.
Send payments frequently
Monthly payments may be burdensome, and you might find it difficult to take out such huge amounts from your pocket. To ease the load, you might want to try sending payment every two weeks. This will trick your mind into thinking you’re paying smaller, even though it’s the same amount at the end of the month.
Prioritize loans that don’t have a fixed inerest rate.
Generally, variable-rate loans offer lower rates– at first. This can quickly change, depending on the movements of the economy. The uncertainty may catch you off-guard, so it’s best that you prioritize paying off these variable-interest loans first.
Consolidate/refinance your loans Owing money to many different institutions is overwhelming. It might be difficult to keep track of your different rates and due dates. To make payment easier and more convenient, you can take out a bigger loan to cover all your separate debts. This way, you will only owe one institution, and keeping yourself on top of things will be a breeze. Refinancing your personal loan will also likely get you a lower rate, so you’ll end up paying less.