Ways to Avoid Defaulting on a Personal Loan

Recently, I hosted some friends at my home. One topic that quickly took up most of our chat time was the pros, and of course, the cons of having so many downloadable loan application software floating around in the ether.

During this conversation I revealed how I had to access a personal loan from one of them and although the interest rate was, in my opinion, unreasonably high, at the moment i announced that i paid it back quite easily, a friend of mine looked surprised and commented with an almost high-pitched exclamation, “How could you pull it off so easily?”

I asked him, “Withdraw what? Take the loan or pay it?”, he replied to the latter of course, to which I gave him a confused look. He then complained that he was so in debt to two applications, family and friends, that he could no longer go to either for a line of credit to cancel any loans outside of his usual pay, especially from one of the apps that had already started issuing late payment penalties.

This was really confusing to me and my other friends, as we had always assumed that this friend was not only quite well off, but had a bigger and more consistent stream of income than the rest of us. Further investigation into why he was having such difficulty repaying not just one, but multiple loans, sheds some light on what his challenges were. And while some may consider this a trivial subject, it’s important to note that, like my friend, many are struggling with the pressure of loan repayments and may need some of the advice this article may have to offer. So, without necessarily disclosing my friend’s private affairs, we are going to think seriously about personal loans, and above all, how to make them easy to repay.

Applying for a loan or otherwise, we’ve all had one need or another, requiring a quick financial solution, and in more cases, than it took to access any kind of credit facility, no matter what. The source. To be clear, there is no crime or shame in taking out a loan or accessing a personal credit facility, the challenge is almost always, not the interest rate or its duration, but how we use the loan and the repayment itself.

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Now, from a purely business perspective, and if you’re even a little familiar with how accounting works, you should understand that the moment you accept a loan, personal or otherwise, this facility goes on someone else’s books as an asset since you are now indebted to that institution or person not only for the loan, but also for the interest to be incurred on it. Likewise, this loan enters your own books as a liability, regardless of the good intention of your use of the funds, and for the same reason.

Passives are always a pain, and it’s best to get rid of them as quickly as possible to avoid incurring further passives, mostly in the form of penalties or worse, foreclosures. A good reason is that they prevent us from achieving other, sometimes more important goals, and on a more psychological level, it just helps you sleep better at night. So here are some strategies to consider when considering repayment plans that could help you clear your personal loans faster.

Do you really need to take this loan to start?

Although this is a slight deviation from the actual topic, this should be the very first step to accessing a personal loan. Ask yourself the all-important question if, to begin with, you really need to take it. Having easily liquidated savings or wealth answers this question very quickly. Obviously, the more money you can set aside for a rainy day and resist the temptation to steal very often, especially on non-essential things, the more, if not more, you’ll have when you really do. need. Thus, you must learn to adopt a strict savings culture and even if you earn a salary today, ask yourself a crucial question before accessing a loan, “Let’s say I lose my job tomorrow, have- I have enough reserves to repay my debt, and over the agreed period?” If the answer is “yes”, then by all means, however, if the answer is “no”, then hope does not is not a strategy you should rely on to pay off your debts.

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It’s time to change your lifestyle

It’s easy to think that if your answer to the above question about being able to easily repay your loan means business is business as usual, then think again. Murphy’s Law states that “if something can go wrong, it will…”, and as another common saying goes, “even the best-laid plans sometimes go to extremes”. Accessing a loan means you have to discipline yourself enough to understand that until the debt is paid, you should keep luxury spending at bay. Even if you take out a personal loan for a luxury vacation, as soon as you answer yes to the question of whether you can repay the loan if something goes wrong, you should immediately seek to erase that liability from your books by reducing any other excesses. , yes , even cable, Netflix subscription and restaurant meals, until the current debt is paid, and in full.

This way, not only will you have more confidence in your eligibility to access another loan, but if the need arises, your creditors will also be willing to grant you another line.

Try to pay more than the minimum payments, and regularly

Before accessing a loan, always be sure to check whether you have a prepayment break or bonus. While some lenders charge penalties for prepayments due to interest payment charges they stand to lose if they no longer have your loan as an asset on their books, most of them appreciate more than well and even offer rewards for it. So if, for example, your loan is to have a repayment period of 30 days, rather than waiting until the very last day and minute to repay, break it up into blocks of 4 weeks and allocate a minimum amount to be paid to a particular day of each week then add a little something on top of that. So on the day of last week, you pay less than the previous weeks. The same strategy can also apply if you are indebted to an individual even without an interest rate tied to the credit terms.

Look for ways to earn extra income

Let’s face it, the main reason you had to access a loan in the first place was that your current income simply didn’t match your financial needs at the time. If you’re the type that doesn’t like being limited in particular on what and how you spend money, it might be time to increase your revenue stream by a pipeline or two. Several articles on this site have been exhaustive on this subject, so we will move on…

Do not use one loan to repay the other

As tempting as the idea may seem at first glance, in more than one case, taking out one loan, interest-free or interest-free, to pay off another, simply leads to sinking deeper into more debt and more headaches. head than at the start. In some foreign cases this may be an acceptable step to take, but don’t make a habit of it, remember, “even the best-laid plans…”

Consider the “snowball” method of paying off debt

This is a great tactic if you have more than one loan to repay. This usually involves starting with your smallest loan, paying it off, then rolling that same payment schedule over to the next loan, then working your way up to the largest. This method can help you build momentum as each balance is paid off and eventually, once you are debt free, you can finally start saving.

On the other hand, you can try the “Avalanche” method

The Avalanche method focuses on paying off the largest loan, especially with the highest interest rate first. Similar to the Snowball method, when the higher interest rate debt is paid off, you put that same money towards the next high interest rate loan and so on until you are done. Focusing on loans that are more expensive to carry, in the long run, would effectively mean you would have to pay less over time and eventually have more to appropriate.

Refinance your loan if you have to

If it becomes clear that you still can’t meet your loan deadline, it may be time to discuss refinancing terms with your creditor and ask for an extended repayment term. Be warned, however, despite the extended period, refinancing also carries heavy interest charges.

Restructure your debt if you have to

Unlike refinancing which simply gives you an extended repayment period on your loan, it not only helps you negotiate an extension but also a lower interest rate. Be warned that this is however only accepted by creditors, in more than one case when it has become clear that insolvency is imminent, in cases such as you lost your job or other scenarios. Creditors will give you time to get your affairs in order, but for a slightly longer term and will only reduce the previously agreed interest rate when they have to.

Drop the old cargo

We sometimes have things or items of some value that have been lying around our homes or office for some time and with no apparent use. Auctioning these old items is also a great strategy for raising enough money to offset your debt without necessarily having to rely on payday to come to your rescue. Plus, it’s a good way to declutter your surroundings while you’re at it.


There have been several laudable initiatives by regulators and financial institutions to promote inclusion in our financial ecosystem, such as digitizing access to credit facilities. In a way, this is a good thing because it increases our awareness of loans and other financial matters. Above all, however, responsible borrowing must be ingrained in borrowers to help them build a healthy credit score and a balanced life, without being overly dependent on borrowing.

Borrowing, especially on the now popular online creditor apps, certainly helps you meet some short-term priorities, even if your current financial situation may not be up to scratch, but it also means properly assessing your needs and your ability to repay, before you even take the loan, then by adhering to the simple practices above to help you stay on schedule when it comes to clearing your loans without anyone knocking on your door or not. ‘call your friends and loved ones to report your credit default.

Essien Brain is a business consultant, with expertise in digital marketing, crowdfunding, pitch decks and business plan/proposal formulation and design.

[email protected]. +234703-444-6041

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