How not to fall into the credit trap?

Loans or cash loans are one of the easiest ways that a person can get into financial difficulties,

Loans or cash loans are one of the easiest ways that a person can get into financial difficulties,

Of course, this does not mean that loans cannot be used – cash loans can be used in unavoidable situations, but the borrower himself must know in advance how the loan will be repaid. All credits, except some quick loans, which offer new customers the first loan free of charge, are subject to interest charges. Loan interest varies depending on the type of loan, its size and the lender. For example, for quick loans, the interest rate is very high – starting at 10% and above, and the repayment term for these loans is usually 1 month. For larger loans (mortgages, student loans), the APR (annual percentage rate of charge) is lower, but in order to obtain such loans you have to go through a very long process of applying for and granting loans, as the large the regularity and amount of the clients’ solvency and income.

The most important thing to avoid getting into the credit trap is to know whether the loan you choose will be repayable on time. Even if the lender offers you to borrow more than you need, you definitely do not. You only have to borrow as much money as you really need. Borrowing a larger amount increases the risk that unforeseen circumstances, such as other major expenses or job losses, may make it difficult to repay the loan. The borrower himself is responsible for repaying his cash loan, as if the loan is not repaid, the borrower will suffer the most.

When borrowing a loan,

When borrowing a loan,

Be aware that it will not only appear in your credit history, but may also affect your ability to obtain cash loans in the future. Credit must therefore be treated with great responsibility. If you have started a loan, especially a long-term one, you should always remember to make your loan payments on time. If you forget to pay one of the loan payments, the borrower will be charged interest. The amount of penalty interest is high, and a negative entry in a person’s credit history immediately appears, which may limit the chances of getting a loan at another time. One way to avoid forgetting your regular credit payment is to create an automatic payment. In this way, if you receive a salary or other income, the bank will automatically transfer the amount needed for the loan to the lender. Unfortunately, the automatic payment will not be made if the required funds are not in the person’s bank account. However, in order to avoid such incidents, the borrower should nevertheless check each time that a loan payment has been made.

If, however, you are in financial difficulties and it is not possible to make a loan payment, you certainly do not need to take on new loan obligations to repay the previous ones, as this is a fairly safe way for a person to fall into the credit trap. In any case, when you have a credit obligation, it is better to avoid taking new loans, even if it is not meant to repay an existing cash loan. When you are in financial difficulty, it is best to inform your lender and agree on how to repay the cash loan with the least possible loss. One way is to extend the loan repayment term. However, it has to be taken into account that the extension is a cost, and quite large. However, in any case, it is a much better option than becoming a debtor and paying penalty interest. For long-term loans, it is also possible to change the payment schedule, for example, by reducing the monthly payment amount.

In order to avoid a situation where there is not enough money to repay the loan, it is better to limit excess expenses during the term of the loan. Managing your budget, that is, your income as well as your expenses, will definitely help you avoid the credit trap. There are many different ways to save money, such as not having to go out for a while, walking more, saving money on public transport or car expenses, buying goods at an online store, selling things you don’t need, etc. as long as there is an active credit obligation, the borrower will reduce the risk of sudden shortage of money to make the payment. Likewise, if the money saving is very successful, there may even be an opportunity to terminate the loan earlier than the due date. Paying a cash loan faster will save the person what they would pay for the loan interest. A good way to get rid of loan payments is to divert your free funds for loan repayment. For example, if a job gives you a bonus or you have unexpected income (inheritance, lottery winnings), it is better to use that money to repay your loan. Even if it is not possible to repay the entire amount of credit immediately, there is a possibility to increase the amount of the regular payment. This means that the term of the credit obligation will also become shorter and less interest will be paid on the loan.

Some debtors have multiple loans, thus more likely to fall into the credit trap. In such a situation, it is best to understand from the outset which cash loans pay the borrower the most. As a result, you need to try to get rid of those more expensive credit liabilities more quickly. Paying off loans with a high interest rate quickly will avoid the unnecessary expense of paying off the loan over a longer period of time.

In the case of multiple loans, it is also possible to consolidate loans or combine several small loans into one large loan payment. This means that you will only have to make one payment each month, and larger loans will always have lower interest rates. Although credit obligations may become longer, interest expense will decline.

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October 19, 2019