Budgeting can be very stressful, so planning carefully is vital! You should take into account how much interest will total, and keep in mind the consequences of missing payments and the subsequent impacts on your credit score.
When juggling loan repayments, it is essential to understand which are most important in repaying and create a budget accordingly.
- The average loan in 2021 was $375, repaid over a two week term.
- Planning repayments should be centered around which are most pressing. For instance, if you have a loan with collateral, those are most important to pay back.
- However, repaying all debt on time is critical to maintaining a strong credit record, which is essential for your future financial health.
- Loans with higher interest should be focused on, too. This is because these are more expensive debts to stretch out.
- Using a budgeting app, such as Honeydue or Mint, allows you to analyze your spending and see where you can make savings.
- Plan ahead to save money! Plan meals, transport and shopping ahead of time to ensure you have sufficient funds.
Prioritise Your Repayments
Addressing repayments promptly can prevent interest from compounding and allow you to regain control over your finances more effectively. Determining which repayments are most deserving of your immediate attention comes down to a number of factors, so you should prioritise your repayments based on the following facets.
Which Payments Will Be Most Problematic If Paid Late?
If assets, such as your home, have been declared as collateral within a loan contract, it is possible that these assets could be seized. This becomes a reality in a minority of cases, but it can happen!
Prior to taking this action, most lenders will typically file a law suit against you first. Even so, these are the types of loans you should prioritise in prioritising repayments:
Interest On Loans
You could adopt the ‘avalanche method’ of payment prioritisation. This refers to paying off your highest-interest debts first. This is because the financial pressure on these loans is higher than those with lower interest, and therefore bear greater strain over time.
Your Day-To-Day Living Costs
It is important to focus on paying bills such as heating, electricity, medical and food bills. When paying off loans, you should always consider how to look after your day-to-day life, rather than paying off large debts without planning ahead.
Your Credit Score
It is important to consider which loans contribute to a strong credit score, such as mortgage repayments and credit card bills. As future loans will rely on a respectable credit history, it is important to pay off these debts to nurture your future financial possibilities.
Now that you’ve considered which repayments are most time-sensitive, it is time to create a budget.
How Do I Create A Budget?
Once you have established how and when you will pay off your loans, it is time to create a budget. You could decide to make use of more modern methods such as using a budgeting app, or use more traditional ways using your bank statements for incoming and outgoings. We have detailed further information below:
Use A Budgeting App
Budgeting apps can be downloaded to your smartphone or tablet and are intended to help you track and control your outgoings. Their overall goal is to better your financial health and typically achieve this by connecting to your bank accounts and credit or debit cards to track your spending, and set spending targets.
While the idea of letting your phone help you budget may seem intimidating, give it a try! These applications are designed to be an easy-to-use helping hand.
Apps aren’t for everyone! If that is the case for you, don’t worry. You can easily create a budget yourself.
Firstly, you will want to be aware of your income. For most people, their primary source of income is their salary, but you should also ensure to account for any benefit or pension payments you receive. Once you have done this, it is time to consider your spending.
To do this you could look at your bank statements and categorise your spending yourself. You could track your spending weekly, monthly or whichever way seems best suited to your lifestyle.
Equipped with the knowledge of you incomings and outgoings, it is time to plan. You should be aware of how much you are able to save each week or month, and how this will go towards paying off your loans and debts.
How To Save Money
Finally, it is time to think about how to save. There are plenty of ways to do this, and most are easy switches which can become economical habits.
1. Plan your meals to prevent the need for high-cost meals out. As well as deterring you from take-aways and meals out, planning ahead means you can buy in bulk, reducing cost-per-meal even further.
2. Save on energy by making sure to turn off lights and appliances where they are not needing. Being mindful about having the heating on can also result in substantial savings.
3. Save on transport by walking and cycling instead of taking public transport or cabs. Planning your travels ahead of time will also be kinder to your wallet, as booking tickets and accommodation is always less costly in advance.