How to Create a Loan Repayment Plan

It’s likely there’ll come a time in your life when you’ll need to borrow money to achieve your goals, whether that’s buying a house, planning life events, or starting a business. Whilst having the option to borrow from a range of lenders is helpful and means you can progress, you also have to be sure that you can pay off your loan so your credit score does not suffer, and you can avoid falling into financial difficulty. Whether you’re choosing payday lenders that require payment within a month or personal loan lenders that can span up to a year, making a plan to help you stay on track with repayments is crucial. Read on to find out more about how to create a loan repayment plan to suit your needs. 

Why is creating a plan so important? 

If you’re taking out a loan for any reason – whether that’s a personal loan for home renovations, a car finance loan, or a short-term loan, making a repayment plan is essential. The sooner you pay off your debt the better, and making a plan in line with your budget to help you means you can stay on track to paying off your loan and becoming debt-free. Repayment plans are particularly important for those that have struggled to pay back loans in the past, and may as a result have bad credit. Using a repayment plan to keep you accountable for repayments means you could improve your credit score and reduce the chance of falling further into financial difficulty. 

Determine your budget 

This is one of the first and most important steps to take when it comes to creating a debt repayment plan. Review your bank statements to get to know more about how much money you have coming in each month, and how much you have leaving your account in terms of outgoings. Categorise your payments making sure your non-negotiable, primary payments are being paid first. Then try to identify if you’re spending too much in other areas that you could cut back on and use to put towards your monthly repayments. Paying off your debt is also a primary expense, so cutting back on unnecessary expenses means increased cash flow to help you pay with repayments no matter what. 

Calculate repayments 

Take a look at your loan term and requirements, and using your budget, determine how much you can afford to spend monthly to pay off your loan. Once you’ve subtracted your non-negotiable payments, like rent or mortgage, car finance, and other essential bills from your budget, a portion of the money left over should go towards your debt. You can use an online calculator to help you work out how much you should be paying off each month to get the debt paid within the agreed time frame. If you have additional money left over each month, you could look at paying more than is required so you can be debt-free more quickly. 

Automate 

Thankfully, automation ensures that all repayments are made on time and in full so you don’t have to think about it. It’s easy to see why some people miss debt repayments if life gets in the way and it simply slips their minds. But with automation, you can set up a payment that leaves your bank on the same day each month to pay off your outstanding debt – you don’t even have to think about it! This saves time and stress and means your debt will be paid off before you know it. 

Review your plan 

Your plan may span over a few months, or even over a year for longer-term loans, so it’s important to review your plan regularly to ensure you’re on the right track, For example, if you receive a pay increase, you may be able to adjust your repayment plan to pay more off each month. If you become unemployed or unable to work, you’ll also need to adjust your plan to suit this. 

Creating a repayment plan means you can track your debt repayments and ensure that your credit score stays healthy whilst also working towards becoming debt-free.