Under the constant pressures of life, many people are forced to obtain numerous loans to cover various living expenses, such as school and university fees for children, or buying an apartment or a car, or simply to pay the costs of daily life with high prices and rising inflation year after year. The salary comes at the end of the month until you find it flying in to pay off the various loans and debts you owe.
Paying off these debts may take many years, during which you will be forced to live with the minimum requirements of life and under the pressures of need, poverty, and poverty.
Perhaps the question that arises is: How do we deal with these loans in smart ways to reduce their burden?
In this report, Al Jazeera Net presents 6 smart ways to deal with your loans and manage them in an efficient manner that ultimately enables you to get rid of them in the fastest time and in the best ways, according to what was mentioned by a number of specialized websites and platforms such as “Forbes”, “Money Tap”, and “Economic”. Times” and others.
Know your loans
The first and most important step is to know your loans and debts correctly. Contrary to expectations, many people who are drowning in debt and taking one loan after another do not know precisely the dues of their debts, their interests, installments, repayment dates, other benefits resulting from late repayment, and other necessary matters. Her knowledge of debt management in a sound scientific manner.
And remember that awareness solves half the problem, and here we advise you to write down the details of all the loans owed to you in a special “Excel” file, for example, and specify in it the amount of each loan, what is the interest rate on each loan, the monthly installment due for each of them, how much you paid, and how much remains. And when does it end?
This will help you know your loans, which are the most expensive, and the smallest and least expensive, which gives you a comprehensive and accurate idea of your debts and how to deal with them. This leads us to delve into how to pay these debts and deal with them after knowing them and being aware of them accurately.
Paying off debt the snowball way
This is a good way to deal with multiple loans. Suppose, for example, that you have a personal loan from the bank, another loan to buy a car, and a third loan for a residential apartment. You must first focus on accelerating the repayment of one of these three debts while remaining committed to the monthly installment of the other debts. There are two ways to do this. that:
The first method: repaying the smaller loan
This method requires you to pay the minimum on all but your smallest debt, which you'll pay as much as you can by “stepping up” the payments on your smallest debt, quickly getting rid of it and moving on to the next smaller debt, while making the minimum payments on the rest of the loans.
Let's say you have a car loan of $5,000, a student loan of $1,000, and a personal loan of $3,000. By choosing this method, you will focus on repaying the student loan as the smallest by making the payments as much as you can, which will free you from one of your three loans faster and then move on to the next smaller loan, which is the personal loan.
The second method: repaying the most expensive and most beneficial loan
This method requires you to focus on repaying the most expensive and highest-interest debt, while committing to pay the minimum for the remaining loans. Your focus on repaying the most expensive loan will help you get rid of it quickly, and save you a lot of money that you would have paid in high interest, which reduces the burden of repayment. The rest of your debts. This method is recommended if you have high-interest loans that exhaust you and take a lot of time and money to repay.
This is a good way to reduce the burden of loans and the numerous monthly installments that must be paid with each salary. Suppose you have 3 loans from 3 different parties, whether banks, private or government lending institutions, and you pay 3 monthly installments that consume your salary and income.
Here we advise you to consolidate these loans by taking a personal loan, or a “debt consolidation loan” to pay off all of your current multiple high-interest loans, and keep only one loan that has one monthly installment instead of paying 3 monthly installments together.
Not only does debt consolidation save you the hassle of making multiple payments and installments, but it may also reduce the amount of interest you pay, allowing you to pay off the loan faster, and with less interest.
If your salary does not help you take out a large personal loan to pay off all your debts, you can take such a loan by mortgaging a property or an asset you own, and many banks and institutions grant such loans with low interest. This way you will only need to track, remember and manage one monthly installment with a flat interest rate.
Allocate the windfall to pay down debt
By unexpected gains, we mean any amount of money that you earn other than your salary and regular monthly income, such as a special bonus for you from your work, incentives that you received at the end of the year, an inheritance that you inherited, a return from a private investment, an award that you won, and others.
Here you must resist the temptation to spend it on various means of entertainment, or to buy luxury items that you do not really need. When you are in debt, it is wise to strive with all your energy to get rid of your debts, and use this money to reduce the burden of these debts.
Raising the monthly installments with every new increase in salary or income
One of the simplest ways to manage loans is to increase the monthly payments every time your income rises. In case of higher income, instead of splurging the extra amount, increase the monthly installment you pay to repay your loan. By increasing these installments every time you get a pay raise, you cut months or even years off your loan payments, and you can save money on interest as well.
Finally, when the loan expires, make sure that you obtain a “clearance certificate” proving that you have repaid the loan, and that you have no other debts to the bank you are dealing with. This certificate is very important, because it proves the fact that the loan has been repaid in full. Also remember to recover pledged collateral, such as a car or property mortgage.