By Mzukona Mantshontsho
Taking out a loan can be easy but managing one needs some practise. There are a few simple things that you can do to help you manage your loan well and make sure that you fulfil your financial commitment to your bank.
The first and most important aspect of managing your loan is to make sure that your monthly repayments are made consistently every month. This will help you ensure that you maintain a good credit record and that you don’t find yourself being liable for extra costs such as penalty fees and added interest. When you have been paid a bonus, receive an increase or have a bit of money available, pay a little bit extra towards your loan. Doing this will help you pay it off in a shorter time period and will also result in you saving on interest and other fees.
“Another useful tip is to have as few loans as possible,” said Pieter Du Toit, CEO of FNB Smart Loans. “Never take out unnecessary loans which may land you in trouble later. This will allow you to manage your living costs well and avoid unnecessary financial challenges. Don’t use up all your institutional debt and start going to informal lenders. You will have little legal protection from informal lenders.”
If you have already taken up loans with various credit providers and then find you are unable to get another one, take this as a warning sign. This may mean that you are taking out too much credit and are becoming a credit risk to lenders. Work on paying off your current loans first before going into any new credit agreements, and if you do decide to take on further debt think about whether you really need it and if you shouldn’t rather be saving. Making a calculated decision will be better than drowning in debt you could have avoided.
“If you find yourself in a position where you are battling to make your monthly payments, make sure you contact your bank immediately,” said Du Toit. “There are various options that the bank can give you such as extending your loan period so your monthly instalments are decreased. Once you have made an arrangement with your bank make sure that you stick to the agreement made to avoid eventually being listed with the credit bureau. Your bank will always try and make things as easy as possible for you to be able to pay off the loan, you just need to be honest about the challenges that you are facing and willing to discuss different options.”
After having such a discussion with your financial services provider, look for ways to increase your monthly income like doing some part time work, baking and selling cakes to colleagues or renting out an extra room in your house. This will give you extra money to contribute towards your loan and help you manage daily living costs. Skipping payments month after month and not contacting your bank can have far reaching consequences. Depending on the terms of your contract you may lose your Customer Protection Plan (CPP) benefits and your family may find themselves responsible for your debt should you pass on.
“The secret in effectively managing your loan is discipline. If you make sure that your repayments are made and make every effort to stay away from further debt you will be in a good position to clear your debt and begin to save and build wealth. If you are overwhelmed because you have too many creditors at the end of the month, debt consolidation is an option that you can consider. This will allow you to pay off one loan with one interest rate a lot quicker than paying off many loans or credit agreements,” concluded Du Toit.