Taking on a loan, even when necessary, can be a heavy financial burden. Here are some strategies for managing your new debt and preventing additional debt in the future.
Strategies for Debt Repayment
Before tackling your debt repayment head on, make sure to get clear on your loan details first. What is your payment frequency and how much will you pay each month? What are the terms of the loan? Once you have those details, you can work the repayment amounts into your budget. If you don’t have one, creating a budget should be step one of your repayment strategy. You won’t know how much you can reliably repay each month without knowing exactly what funds you have left after expenses.
Once you know your total expenses will be with an emergency loan added, you can find ways to earn extra funds each month to cover payments or watch your spending so you can reliably make them. Working extra hours so you can pay more than the minimum balance—and pay it earlier than the due date—will help improve your credit score.
If you aren’t sure you can make payments on time, talk with the institution you borrowed from for advice and planning tips. They have an interest in seeing you pay them back, so they are usually happy to offer advice.
Should you feel financially underwater, consider talking to a credit counsellor for help and advice on dealing with your new debt. The Financial Consumer Agency of Canada can point you in the right direction to several agencies that work with Canadians having trouble paying back their debt.
Avoiding Future Financial Stress
To not need an emergency loan again, remember that hindsight is 20/20. Look at your spending for the months before taking out the loan. Did you purchase something way out of your budget? Did you have too many monthly recurring subscriptions or payments that ate away at your paycheck? While it might be time-consuming, looking through your spending habits can reveal much about where you may need to cut back to prevent this situation from happening again.
If you don’t have a budget in place, this could be a sign you need to start one. And we don’t mean breaking out graph paper or a huge Excel worksheet, either. There are plenty of budgeting apps that can help you easily manage your funds. Some link with your bank accounts, so you have to track even less.
Finally, sometimes we get into financial emergencies because we consider purchases as payments instead of purchasing something upfront. That’s OK, so long as you don’t miss any payment deadlines and incur additional fees. These additional fees can add up and lead to overborrowing your funds, putting you at risk.
