Are your unsecured personal loan debts getting out of control? Were you trying to consolidate other bills only to find yourself in worse financial condition than before?
When you borrow unsecured money from a lender, they can often be particularly difficult to repay. One of the main reasons is that these loans and the fixed payments that are due on them often lack the flexibility of other types of debts including credit cards. Individuals have very few options available to them when they need assistance. Getting help, including counselling, with these loans may be necessary if you are finding yourself increasingly unable to make on-time payments.
What can you do if you are unable to repay these loans over time or even just keep up with the monthly payments?
Switch to Another Loan
If your monthly payment is unaffordable, consider whether you can switch to another loan or some other type of borrowing. There are a couple of ways where this can help you afford your monthly bills.
- Switch to a loan with a lower interest rate. By reducing the rate on your current loan, your monthly payment can be lower. Many borrowers are dismayed at how much of each payment they make on a monthly basis is directed to interest instead of the principal balance. Even a couple percentage points lower could result in a lower payment and a higher percentage of principal paid from each payment.
- Increase the term. If you switch to a loan with a longer repayment term, it can also lower your monthly payment. This should only be done if you are in danger of falling behind, since extending the repayment term will increase your overall borrowing costs.
Drop Payment Protection Insurance
You may pay extra for this in anticipation of the scenario in which you are unable to make your minimum loan payments due to some financial crisis. However, this type of insurance tends to create a self-fulfilling prophesy. By directing such a high amount of each payment to this type of product, you increase your expense. it will in effect raise the cost of the loan and therefore increase the chance that it will become unaffordable.
Another reason maybe not to do this is that most people that have payment protection insurance have difficulty actually utilising the benefits. There are often serious limitations that prevent the coverage for many insurance purchasers.
For those lucky enough to be able to recoup their investment, they are usually only recouping money they already sent in as premium payments. All they really did is prepay for those skipped payments. The best bet is to skip these expensive products and instead focus those extra dollars on paying down the loans. So in other words, just budget properly and pay any extra income or savings you have to your outstanding bills. Best of all, by getting rid of payment protection insurance, your balances will drop twice as fast. Refinancing that lower balance can result in a reduced payment on any loan that you may have that is unsecured.
Get Free Advice
Ignore the loan companies and other entities that seek to profit from your financial woes. Contact the Citizens Advice Bureau for help. They will work with consumers and often provide them with free advice. You could get a break from high interest rates and high payments, but you must be willing to accept the recommendations of a debt counsellor.
While unsecured personal loan debts are important to prioritise, you should understand that secured debts such as a car loan or home mortgage are more important to pay down. You are much more at risk if you miss payments on those obligations. We have information on how to get help with paying down credit cards, and in addition to that, your debt counsellor can help you to properly prioritise your debts.