There are times where you might find yourself unable to pay a given debt due to unavoidable financial constraints. This situation affects many people every day due to poor financial decisions, unexpected expenses, unmanageable high costs of living, and job loss or business failure. Eventually, the debt is written off as a bad debt. However, these bad debts can negatively affect your credit score and other financial benefits that come with good credit records. However, a personal loan can come in handy and alleviate your bad debt troubles. Personal loans are loans with low-interest rates that you take to handle a personal expense, like a bad debt, and then pay the loan within agreed intervals. In most instances, the loan is paid off on a monthly basis. Remarkable credit companies like MoneySmart understand that some financial situations are unavoidable and thus make these loans available to you at incredible installments and rates. How are you able to use these personal loans to pay off bad debts?
1. Analyze your financial needs.
The first step to paying off bad debts through personal loans is to ensure that you fully analyze your financial position. You must understand what has brought you to the bad debt in the first place. Many people get into bad debt because of making poor financial decisions. Therefore, if your cause of bad debt is poor management of finances, it is highly likely that your personal loan will not assist you in redeeming yourself from the problem. If you are in bad debt because of the loss of a job, you must assess how much you need to pay off the bad debt and the likelihood of using the personal loan to cater for other personal expenses. It is possible to use the loan for your needs, especially since you don’t have a current income source. Therefore, assess your current financial situation to rule out any chances of using the loan to cater to other personal needs. If that be the case, ensure that you have your numbers right since the main goal of the loan is to help you recover from bad debt.
2. Pick the right repayment plan
After assessing how much you need to pay off your bad debt, it is time to negotiate on the right repayment plan. You need to assess how much you can comfortably earn monthly to understand your ability to pay off the installments of the loan. To your advantage, they are loans with low-interest rates, and therefore the installments are easy on your pocket. However, considering the reason behind your being in bad debt, your repayment plan needs to be well informed. If you make poor financial decisions, get professional guidance to avoid getting deeper into bad debt. If you lost your job, consider the alternative income sources available to you to understand how much you can comfortably spare for your loan repayment.
3. Take the loan
After understanding and taking the above two steps, you will take the right amount of personal loan and repay your bad debt as the first step since it is the main reason behind taking the personal loan. Avoid any instance or circumstance that would divert your aim of bad debt evasion. Such instances are temptations to budget for other personal needs like shopping, food, or children’s expenses. Such unplanned expenses are among the poor financial decisions that result in bad debts in the first place.
4. Live within your financial capacity
After you have successfully repaid all your bad debts using a personal loan, you should maintain your freedom from bad debt. This is done mainly through living within your financial capacity. Assuming that you made the right decisions in terms of your installment plan, your current financial position should comfortably support you and your repayment strategy. Avoid instances or lifestyles that threaten to take you back to the former position of bad debt. For instance, avoid buying luxurious commodities you can do without until you have repaid your personal loan in full.
Personal loans are a great opportunity for you to redeem yourself financially but can potentially bury you deeper in bad debt. Therefore, it is wise to take them with utmost seriousness and precaution. If you are struggling with bad debt, visit MoneySmart for the best offers on personal loan rates and installments.