Money_Guru

How do you assess when a "little" personal loan is acceptable or dangerous.

For many lay people, knowing when and how to avoid a financial disaster or overdraft can be tricky because the clues are subtle. If you plan to apply for a personal loan, or if you are already for one, assessing your debt situation gives an overview of your personal finance and place some frugality measures in place.

10 Hard Questions for Assessing Your Current Debt Situation

Below are the hardest questions you can ask yourself in order to determine if you're treading on thin ice.

Q1: Is the percentage of your income allocated to pay debts increasing?

If you have been using the money tracker ideas I shared, you are keen on how much of your monthly income in % are going for your personal loan. If it has increased over time, you should take caution. If not, then you're doing well.

Q2: Do you have a savings cushion? Is it adequate?

A savings cushion is money you're setting aside to protect you in case financial trouble strikes. It could be for emergencies or as a debt protection measure. If it is non-existent or if you think it's inadequate, try to find an item you can minimize or cut in your budget to fund for it. If this is not possible, then take a note of this possible impediment to be accounted for in your future personal finance decisions.

Q3: Are you nearly maxing out your credit line?

Or maybe you are at the limit? Be cautious of your credit lines.

Q4: Are you paying for the loan through your credit card?

If you plan to obtain a loan and forecast to only pay the monthlies through your credit card or revolving charge accounts, let me tell you outright that it's a bad idea. If you are paying currently for your loan this way, know that you're in a bad situation and should take remedial measures.

Q5: Are you late in paying your bills?

Not a good sign. Late payments usually have penalties which are additional strains on your budget.

Q6: Are you paying bills allocated for something else?

This is a sign that your financial situation is not healthy.

Q7: Are you now borrowing money to spend for items you used to buy with cash?

This is a cause for a pause. Might as well suspend purchase for a later time if possible.

Q8: Would sudden loss of job put you in an immediate financial difficulty?

Always assure source of income before getting a personal loan, or a savings cushion for such emergency as employment.

Q9: Do you know how much you owe?

Are you calculating your remaining unpaid balance every month? Always keep track. When planning to get a loan, get a clear statement of how much you owe so you can budget.

Q10: Have you been threatened with repossessions of your property or other legal action?

This is the surest sign that you're mismanaging your debt. Don't let things come to this. Seek help from a financial advisor or some other professional who can give you financially viable options.
Note that these questions can and will spark your defense mechanism to action. Make the effort to answer each one truthfully without denial. Anyway, only you will know.
These are very subtle clues that our minds tend to overlook and that will prove to be very useful once identified.