How Personal Loans Can Help Build Better Financial Habits

We often think of debt as being a bit of a negative thing.

But personal loans can be a really invaluable financial tool when you don’t have quite enough cash on hand to get to a particular goal.

When used strategically and carefully, personal loans can be a way to get on top of debt, help you manage an unexpected expense and even promote financial discipline.

Here are some tips for how you can use personal loans to build better money habits.

Understanding personal loans

What is a personal loan?

As the name suggests, a personal loan is a loan taken out in your own name, or with a partner. It can be used for anything from home renovations to travel, wedding expenses, to debt consolidation.

Debt consolidation for financial clarity

What is debt consolidation?

Debt consolidation refers to the process of combining two or more loans or debts into one new loan.

People may choose to consolidate debt when they have a number of different payments due each month, which are difficult to manage. Having just one consolidated debt payment can be easier to budget for.

It can also be a way to get a lower interest rate. Personal loans tend to have lower interest rates than many credit cards, for example.

Discover More

• Personal loans versus credit cards

• How to manage multiple credit cards?

• Is debt consolidation right for you?

Wondering where to start?

A good place to jump off into any discussion of debt consolidation is with better finance’s™️ debt consolidation calculator.

This will help you get a sense of what your repayments might be if you consolidated your debt.

Budgeting and expense management

Using personal loans for planned expenses

Many people use a personal loan for a planned expense.

There are a number of life events that you plan for, but for which you may not be able to save sufficient money ahead of time.

That could include education, travel or weddings.

Once you know how much you might need to borrow, you can use better finance’s™️ loan repayment calculator to help you work out how the loan will fit into your budget in the future.

Setting financial goals

It’s usually recommended that you use your loan funds for specific, measurable goals.

You’re borrowing for a purpose, and once that purpose is achieved, you can then shift your focus onto repaying the debt.

This can be a more effective approach than, for example, credit card debt, where the amount you owe can fluctuate and increase before the initial debt is repaid. With a loan, you have a set amount that you are paying down, whereas with a credit card, you could make more purchases on the card before the initial debt is cleared.

Avoid overspending

Although a personal loan may help you to cover a cost that is higher than you could afford if you were paying upfront, it’s still important to stick to spending that works within your overall budget.

We can help you consider the loan in the context of your wider financial life and other goals you may have.

Discover More

• Budgeting 101: Your guide to creating a budget plan

• Three great budgeting apps to help Kiwis manage their personal finances

• Finding the money leaks: The benefits of conducting a subscription audit

Building financial discipline

Paying off your personal loan can be an excellent exercise in building financial discipline.

For the period of months or years that you are repaying the loan, you’ll be required to meet your repayments.

Each payment you make will help to build your credit history. Setting up your automatic payment to be in sync with when you are paid can help to ensure you always have the money there when you need it.

Tracking progress

As you pay off your loan, you can track your progress towards being debt-free and consider how you are progressing towards your other financial goals.

Celebrate your successes to help keep you motivated.

Why choose better finance^TM?

Here are three key reasons why better finance™️ is a great option.

• We offer fast approvals and are transparent about the fixed interest rate you’ll pay over the term of your loan.

• You can access personalised support from our expert team of more than 20 advisers.

• There are no hidden fees or surprises.

Wondering how to apply?

We have a simple application process that will only take minutes.

From there, you can expect to receive an answer quickly. You can apply here.

Common mistakes

While a personal loan can be a handy tool, there are also things to watch out for.

Overborrowing

Only borrow what you feel comfortable repaying, even if that’s less than a lender says you could be able to service.

Ignoring interest rates and fees

It’s important to understand the total cost of any loan you’re considering. That’s why the better finance™️ team will always help you to fully understand the fees and charges involved with a loan we help you apply for.

Using loans for non-essential expenses

A loan can be extremely useful when it helps you buy something you really need. But if it’s not an essential purchase, it might be worth taking some time over it to make sure a loan is the right option for you.

Conclusion

If you have any questions about personal loans, the better finance™️ team is here to help. We’re experts when it comes to lending, and we can help you find a solution that works for you.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.