Four Most Important Things That People Forget After Taking Logbook Loans
Between 2003 and 2016, the number of people who went for logbook loans hit through the roof. From only 3000 in 2003, the number surpassed 40,000 within 13 years. There is more to this situation. Most of the people taking the logbook loans are defaulting and sinking deeper into financial trouble. The problem has even escalated and extended to people who buy used vehicles. Many end up acquiring cars with loans only to have them recovered and auctioned. When many people take logbook loans, the tendency is forgetting some critical things.
Saving for emergencies
The moment people take logbook loan; the first line of action is shelving everything else and putting all efforts on clearing the loan. However, turning your back on saving for emergencies is very dangerous because you will end up rushing for another high-risk credit in case of an emergency. The best thing to do is directing some cash to your emergency account until it reaches an amount equal to 12 months salaries.
Making monthly payments on low interest and low-risk loans
Because of the current issues that drove you to seek a logbook loan, there is a tendency to forget other low-risk loans. These are credits such as school and bank loans that have very low-interest rates. However, while clearing the logbook loans is no doubt a priority, leaving out others will keep pulling down the credit score. By the time you clear the logbook loan, it will still be impossible to get credit from financial institutions because you will still be a high-risk party.
The best thing to do is identifying the lowest amount that should be paid for every loan while giving more focus to the logbook loan. For example, after meeting the lowest allowed amount for all loans, cash released from austerity efforts should be directed to the high-risky loans.
Planning for essential personal expenses
Though you have a logbook loan, all the revenue cannot be directed to clearing it. The other monthly expenses are very important because they determine how effectively you operate and capability to remain productive. For example, you must set aside cash for rent, transport, children fees, and food before committing cash to clear the loans. It is important to identify all the expenses and quantify them well prior allocating cash to other areas including loans.
For some people, logbook cash closes the need for budgeting. After clearing the problem at hand, some think that the problems are fully addressed. However, this is a false alert because there is a huge burden of clearing the logbook loan and others that were pulling the credit score down. Budgeting must become part and parcel of your life at all times.
Note that the role of budgeting is not to simply divide cash to various areas, but to also identify the need for more revenue. For example, it will be easy to appreciate that the expenses are many and need for additional streams of income. This will serve as the eye opener to seek more resources.