For many, maintaining regular payments on loans is no walk in the park. Maybe that’s also the case with you. And for some reason, you don’t know why. Well, if you have a hard time asking yourself, maybe reading up on the usual reasons many other borrowers like you struggle to pay back their loans will give you clarity.
Underestimation of Monthly Costs
When you set a repayment schedule, you can only assume everything will be like clockwork. But when you do this, you fail to consider out-of-pocket expenses. Chances are that they use up a chunk of your budget, making it a squeeze just to make that payment and avoid defaulting.
That is why, aside from your usual expenses, you need to allot money for possible out-of-pocket expenses. A more realistic budget that takes all possible expenses into account is more sustainable when you’re currently repaying a loan.
Irregular Income
Many freelancers and commission-based income earners have irregular income. Unfortunately, when they take out a loan, they fail to consider this and assume a best-case earnings scenario. This can make a standard loan repayment schedule difficult and frustrating on their part.
Loan repayment on an irregular income can be dealt with by saving some money during high-earning months to supplement lower months. This creates a form of “financial buffer,” which can be useful to stabilize the flow of cash when it is tight.
Lack of an Emergency Fund
Unplanned expenses will often sabotage even the best of financial plans. Without some cushion, unexpected expenses—medical bills, car repairs, or appliance replacement—can feel overwhelming. This could result in missed payments, making your debt costlier.
A little emergency fund is better than nothing. It will help address your emergency expenses and protect you from being forced to miss payments in these times. The process of building an emergency fund can take months, but the peace of mind it affords during life’s unexpected twists and turns makes it worthwhile.
High Interest Rates and Hidden Fees
It’s hard to feel motivated knowing that a large portion of your payment will be applied to interest rather than the principal. Adding late fees or missed payment fees in the mix, and it’ll seem like the debt stays the same.
If you feel that a high interest rate has become a struggle, consider refinancing if possible. Lower interest will lower your monthly payment, allowing you to pay the principal faster. Talk to your lender about your eligibility for a lower rate. On the other hand, if you have multiple debts, you can go for debt consolidation plans. These approaches can make it feel like you are moving the needle.
New Debt and Lifestyle Creep
Perhaps the most insidious enemy of sticking to a loan repayment plan is the urge to take on new debt, especially when unexpected or “one-time” expenses arise. Lifestyle inflation can creep in also, where the spending grows gradually as income increases. The costs of a more upscale lifestyle, such as dining out more frequently or upgrading to more expensive gadgets, can cause you to take on more debt than you think you can pay, making repayment more difficult.
Prevent lifestyle inflation by controlling your spending behaviors and reminding yourself of the financial goals you are working on. Do not take on more debt for some expenses. Rather, hold off until your loan is repaid.
Lack of Communication with Your Lender
Most people feel awkward approaching their lender whenever they face difficulties in loan repayments. This, however, worsens the situation because this could help resolve it. Most lenders are willing to work with the borrowers rather than letting them default, and most lenders usually have solutions for people who are under financial pressure.
If you are not in a position to make your payments, never forget to reach out to your lender, whether they are a money lender at Toa Payoh or anywhere else. They may let you have a temporary reduction in payments, defer for some period, or simply restructure the loan. While there’s no guarantee that they will give you more favorable terms, the important thing is that you reach out instead of running from your debt.
Also, check your loan repayment plan each time you have a major life change, such as marriage, moving, starting a family, and switching jobs or even careers. Determine whether changing your budget or speaking with your lender to create new terms can help you have a better payoff experience. A plan that reflects your current situation will be more manageable and realistic in the long run.
Conclusion
It is not easy to stick to a loan repayment plan when your finances and habits are not 100% okay. That’s why it’s important to determine why you’re having trouble repaying and address it. By doing so, you’ll be able to fulfill your financial obligations.
