While Using Credit Card Or Personal Loan In Financing, Proper Plan For Management Of Debt Burden Is Imperative

Category: Finance.

Acquiring a personal loan is intended for financing and managing a person s financial needs. But, before deciding about the financial goals, a person must assess his or her financial situation.

For taking finance, a person may apply for a loan or a credit card to purchase shares or any asset like home, vehicle etc. While using credit card or personal loan in financing, proper plan for management of debt burden is imperative. The most common errors that occur in the credit report are outdated information, which can stay on the report for seven years, and inaccurate marking like erroneous late payment, repossession and bankruptcy. Correct information should be given in the credit report because the chances are high that incorrect information and mistakes on credit report have an adverse effect on the personal loan. Prior to applying for a loan with a financial company, it must be ensured that best rates and terms are selected especially for first time borrowers. Lenders usually impose higher interest rates for loans on small amounts and so it makes better sense to apply for higher amounts of loans and use the surplus cash to invest with higher rate of interest. First time borrowers must initially determine how much to borrow and for how long to take for repayment.

If that is frightening, it is advisable to write a budget of all the expenses including monthly bills and daily living costs. The amount to be borrowed can be determined on the basis of the purpose for which the personal loan is taken. Then the expenses should be subtracted from the net income and 75 percent of the left over amount can be set apart for the monthly loan payment keeping the rest 25 percent as a buffer for other expenses. The length of the time taken for repayment of the money borrowed is the term of the loan. In fact, there are viable alternatives to personal financing that can save money. The longer the loan term, the lesser the monthly payments and more the interest rates.

For example homeowners can explore mortgage products and refinancing also will help to some extent. Borrowing against 401k is a wise decision. For a relatively lower amount, applying for a credit card can come in handy for people with poor credit if the intention is to pay off the debt in a short span of time. It is also equally important to get a copy of the 3- in 1 credit report which provides a complete analysis of profiles as reported by three major credit reporting agencies. Apart from all these hassles, to avoid dealing with emergency purposes- most of the personal loans are for this purpose- it is good if a small" emergency fund" is developed by entailing a few dollars away every month as savings. If the application for personal loan has been rejected, it is advisable to wait for one or two months before applying again because if applied in more than one source, multiple inquires will adversely affect the credit score.

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