Does it feel that your financial situation rolls down a steep slope with the gas in the bottom and into a dark bottomless abyss? Have you felt tempted to shop for credit and installment and have taken other loans here and there to get the economy going around? Do you continue to apply for loans from all possible banks, lenders and brokers in an attempt to collect everything but do not get a loan granted anywhere?
Quiet. This can be arranged if the will exists. We who work as administrators at the loan broker Rosalind talk to customers in this situation daily and have therefore developed this guide for how you can do to check your loans and your finances, among other things by improving your credit rating.
Stop searching for loans
The first thing to do is stop searching for loans or buy things on credit and installment. Since you already have existing loans and applied for loans in many different places, your credit risk has most likely hit the ceiling. If you continue to apply for a loan, only more and more credit reports will be taken that will continue to destroy your creditworthiness and the possibility of obtaining a collective loan for good terms will only be postponed in the future. So don’t look for any more loans and don’t let anyone take credit information on you. You can even contact UC and ask them to block your social security number so that it will not even be technically possible. A better alternative at this stage is if you have a close relative who can take a good collection loan with you or for you in order to lower your costs that can give you breathing space. But still keep reading for tips and advice on how to improve your financial situation.
Here’s how to get control of your current loans
Instead, take a step back and try to get an overview of how much loan you have and what they cost you each month. Do this:
- Find out what you have for a loan – It will give you a good overview of your current loans and credits, any payment notes and when they disappear. Here you also see which credit requests are made on you. These are registered for 12 months and then they disappear. Look at your latest credit report and count 12 months ahead so you know when all credit reports are gone – but often you do not have to wait so long but maybe it is enough to wait 6-8 months. Please inquire about this. If you also have payment notes, you should preferably wait until these have expired if you want the market’s lowest interest rates. However, if you have high interest rates on your existing loans (over 15%) then it may be a good idea to wait 6-8 months from your latest credit report and apply for a loan thereafter. Several lenders that lend money to you when you have payment claims can offer relatively low interest rates (from 6.75%).
- Call around to all lenders – Now that you know how much you have in loans and to which banks and lenders it is, you should pick up the phone and call them all (you can skip the bank where you have a possible mortgage in this phase). For those lenders where you have an unused credit, you should ask them to close these for you. These have a negative impact when you apply for a loan. At the lenders where you have borrowed and credit you should find out 1) how much debt you have left , 2) the effective annual interest rate on the loan, and 3) the number of months left on the loan . Importantly, it is not the nominal interest rate you receive but the effective one since it also includes fees that are linked to the loan.
- Start counting – Open the attached excel file called “My Economy”. Above three numbers you should plot into the yellow columns in the tab “Overview of loans”. In column A, starting in cell A14, you should erase what is already there (Lender 1) and replace it with the real name of the lender. In cell B14, enter the amount you owe to that lender. In cell E14, you must specify how long the term is left on the loan for months. There is space in this calculation for a total of 13 lenders. Say you have loans from only two lenders. Then you should put cells B16-B26 to 0. C / E16-C / E26 cells should be set to 1. Column IL will then automatically calculate how much you have in total debt, which cut rate you have on all your loans, what these cost you every month in repayment and interest and what the total interest cost of these loans will be in the end. Don’t forget to save the file on your computer so you can return to it later!
- Now you have a look at the loans – Now that you have a clear picture of your loan situation, you know that the ambition later on is to find a collection loan at a lower interest rate than your current average interest rate that will give you a lower monthly cost than your current monthly cost and preferably also a lower total interest cost over time.
Here’s how to get your finances in order in general
Now in the short term, you must first get your finances in order, so that you can manage to pay for the loans as they are when you cannot get a collective loan at the moment.
- Lock in for a few hours – send the children away, turn off the cellphone, the TV and anything else that can distract. Sit at a table and bring out the account statements and old bills.
- Now go to the tab “Overview of finances” in the same Excel file. Find out exactly how much you have in income after tax each month (usually be pay after tax and any child allowance). Check the account statement if you are unsure. Count on all the income you have to move with. Enter the source of revenue in the cells A2-A10 and the actual amounts in the cells B2-B10 in the tab “Overview economy” in the Excel file. There are already some prescribed examples. You should, of course, delete these and replace them with your own numbers.
- Then look at your bank statement and the old bills. You can plot your monthly costs according to the specified main categories in the same sheet. Delete the examples and enter your own costs. Take a cost item per line. The file automatically calculates your costs.
What did you get for the net result at the bottom of the file in line 189? If it is a positive figure then the calculation holds. The money left over should be used to pay extra (amortize) on the most expensive loans you have. If it is a negative figure, it means that you go back every month and have to take off saved funds or borrow to get the economy to go around. If so, you are faced with the following choices:
- Can you reduce your costs anywhere because your revenue minus your costs should be a zero or any positive result?
- Is there anything you can sell to increase your revenue? Mutual funds? Furniture? The car? The motorcycle? Find a cheaper accommodation?
- Is there anything you can do to get more salary? Work extra? Change jobs? Ask for a pay rise?
- In the worst case scenario, you can talk to your current lenders and ask them to extend the maturity of your loans so that you get a lower monthly fee. This is not preferable since in practice this means that your total interest expense over time will increase and that it will take longer to get rid of the loans. But it is sometimes a necessary evil. The lenders will usually be bothered by such a question but they will bring with you if you insist on two reasons: 1) they do not want you to end up in a situation where you cannot pay off their loan and 2) they will make more money when your total interest expense goes up. So insist on an extension so they usually go with it.