Personal loans can help tide you through many unforeseen circumstances in life. They can help you pay for your home renovation, a new car, or an unexpected medical emergency. Sometimes, you’ll even have to juggle multiple personal loans to make ends meet.
If you have multiple debts to settle and are thinking about how to get out of a personal loan, these tips may come in handy!
1. Be aware of all your existing financial commitments
Do the maths — knowing what you owe and how much you owe is the first step in learning how to manage a personal loan. Juggling multiple personal loans? They can be very challenging to keep track if you aren’t the most organised.
Here’s our recommended strategy: Lay out all your existing loans and note down how much you owe. While you’re at it, review your personal loan repayment agreement for every loan that you’re servicing.
Having a clear list of your personal loans —and other existing financial liabilities— will allow you to prioritise those with high-interest rates, which you’ll need to focus on repaying first.
2. Create a budget
Are you spending more than what you’re earning every month such that it’s tough to make loan repayments on time?
Having a budget can help you see where your money is going and what your priorities, needs and fixed costs are. Having a budget can also help you cut back on unnecessary expenditures, if you’re disciplined.
When creating your budget, perhaps you realise that you’ll save more by cooking your own meals instead of going out for dinner every day. The extra money saved could go into paying off your personal loans for example.
3. Be disciplined
Now that you have an overview of your expenditure, set your short-term and long-term financial goals and be sure to stick with them. Adhere to your personal loan repayment period by paying your loan instalments off in full every month.
List down the necessities, and if you want something that’s less important, put it on hold for a while or put aside some savings for it.
Picture the sense of accomplishment you’ll feel once you’ve paid off the last of your debts. When you’re disciplined in your loan repayment journey, that goal will be within reach!
4. Always pay off your loans on time
Did you know that your credit score will improve if you adhere to your personal loan repayment agreement and maintain a good record of paying off your loan instalments on time? Lenders may offer you better interest rates or bigger loan quantums on future loans.
Ergo, it’s important to know your personal loan repayment schedule and ensure you make timely payments. A good tip could be automating recurring payments (e.g. GIRO) for all your bills and loan repayments so that you don’t forget to make them.
5. Avoid getting into more debt
If you’re juggling multiple loans and wondering how to get out of a personal loan, the wisest thing to do is to watch your spending habits. Break bad money habits like making impulse purchases or spending way above your means, and work towards cutting costs. Cancel unused subscriptions, focus on paying off your loans in full and remain committed to your personal loan repayment period.
6. Consolidate your debt
Consolidating or refinancing your loans with a lower-interest loan can help you save money if you have a good or exceptional credit history.
How does debt consolidation work? As its name suggests, you combine multiple debts (e.g. credit card bills and unsecured personal loans) into one and use the funds obtained from a new loan to pay off this consolidated debt. Of course, you’ll have to make monthly repayments for this new loan throughout the loan tenure and stick to your loan repayment agreement.
Apart from potential interest savings, a consolidated debt is easier to manage than having to juggle multiple debts.
7. Make paying off high-interest debt your priority
Paying off loans with the highest interest rates first (e.g. credit cards) will help you save on interest costs in the long run. This method is called debt avalanche. Keep paying the minimum monthly payments on all your loans, but allocate every extra money you have towards the loans with the highest interest. It takes a lot of discipline and commitment to pull off, but this helps you be debt-free faster.
Can you pay off a personal loan early?
Yes, you can pay off a personal loan ahead of time. It can mean getting out of debt faster, but it also has its drawbacks.
Are foreclosure charges on a personal loan worth paying for? Well, if you’ve taken a personal loan from a major bank in Singapore, be prepared to be charged an early repayment fee of 3% of the outstanding loan amount, or $150-250, whichever is higher, depending on your personal loan repayment agreement with the bank.
Be that as it may, when you consider the possibility of freeing up your income flow and saving for the long term, the early repayment fee is a tiny amount to pay.
Is it true some personal loans have no early repayment charges?
Yes! Some licensed money lenders in Singapore encourage borrowers to pay off their loans ahead of time by not imposing any fees or penalties. In fact, paying off your loan early may save you interest costs.
Important note: This does not apply to every borrower and is usually at the discretion of the money lender. Be sure to check your personal loan repayment agreement for early repayment charges before committing to a loan!
Can you put personal loan repayments on hold?
If you encounter any financial hardship during the course of your personal loan repayment journey, you can apply for a loan deferment with your lender. All loan deferments require pre-approval, and your loan tenure will be extended based on the number of months deferred.
Unfortunately, there are consequences when you delay your monthly personal loan repayments.
In most cases, your total interest payable over the entire loan tenure will be higher as late interest and compound interest will start accruing on your outstanding balance during the deferment period.
If you’re still unable to make your loan repayments on time after the deferment, the bank may:
- Pursue legal action against you
- Provide you with reduced or no access to crucial loans
- Deny you of access to further unsecured credit
- In the worst-case scenario, seize your bank accounts to recover the debt
Bottom line
It’s important that you keep your lines of communication with your lender open if you’re finding it difficult to pay off your loan.
Speak to your loan advisor about the best ways on how to get out of a personal loan if you must. Based on your situation, your loan advisor may offer you a loan extension or help with debt consolidation at their discretion.
