It is common to face cash shortfalls due to one reason and the other. Thanks to direct lenders who provide loans. However, most of the people end up taking out bad credit loans because of a poor credit rating.
Since loans for bad credit in the UK carry high-interest rates, most of the people fail to manage the debt. However, the fact is you face this problem due to borrowing more than your affordability.
The length of these loans is short. It seems natural to pay back the whole of the loan, but as the due date approaches, you find yourself strapped and end up with taking out a rollover loan. Consequently, the cost of the loan quickly adds up.
You do not immediately get into a debt trap; it is a slow process. Here are the symptoms of falling into a debt web:
1- There is not enough money to pay your regular expenses like rent after paying off a bad credit loan.
2- Your finances are uncontrolled.
3- You fail to pay off the debt in a lump sum.
4- You receive numerous calls from your lender.
As these symptoms pop up, you should immediately take the lead. Here is what you should do when such loans push you on the verge of financial collapse.
Consider an extended payment plan
Some lenders offer an Extended Payment Plan (EPP). It allows you to pay down your debt in weekly installments. It is a better and easier way to manage the whole of your mortgage.
Look for an extended period
Not all direct lenders follow the EPP scheme, and if you continue to take out a rollover loan, you will fall into debt. When you know that a lump sum payment is not an ideal option for you, you should seek other short-term loan alternatives, including instalment loans, to fund your needs.
Since you will pay down your debt in fixed installments, you can easily manage them. However, note that the minimum amount of these loans is £1,000. The repayment term of such investments depends on the size of the loan, which can vary from three months to 12 months.
Consolidate your debts
If you have been juggling with various obligations, the ideal option is to take out a debt consolidation loan. It allows you to borrow a large amount of money at relatively lower interest rates. You will quickly create a budget accordingly.
Now you have to pay down the new loan only. Fixed monthly payments will fir in your budget and, you can get rid of the debt trap.
Generate more income
Of course, if you are relying on a loan for your needs, it means that your earnings are not enough to keep the wolf from the door. You should find out more ways to generate income. A part-time job or freelancing can help you have more cash coming in.
If it is challenging to generate income through these sources, consider the following methods:
1- Sell unwanted stuff. Look around. You will find a lot of things you do not need. You can sell them online.
2- Online surveys can help you generate the right amount of money.
Restructure your payment plan
If you sense that you cannot repay your debt on time, talk to your lender, and inform them of your financial condition. Even though your lender cannot allow you to use the EPP scheme, they can put you on the other repayment term.
Sometimes lenders allow you to pay the minimum amount. It helps you save your money in interest. Try to seek a longer repayment term.
What is next?
Those mentioned above are the best methods to get out of a debt web. Once you are out of this quicksand, you need to do the following things:
A- Create an emergency cushion
Start building an emergency cushion. The rule of thumb says that you should start setting aside at least 10% of your monthly income. Be stick to your saving plan and dip into these funds only when an emergency occurs. Never use this money to invest in your impulsive buys.
B- Build your credit rating
A good credit standing is a must to borrow money at a lower interest rate down the road. Take out installment loans. If you pay down each installment on time, your credit score will go up.
C- Cut down your expenses
Try to take hold of your spending. If you avoid spending money on unnecessary items, your savings will improve. If you get caught in a trap of loans, you should consider the methods mentioned above to get out of it.