These days, getting a loan approved isn’t always easy. The banks have tightened their eligibility criteria and favour loan applicants that have their finances in order. So, how do you go about getting control of your finances? Pay off that personal loan? Retire your credit card debt? Reduce your HECS debt?
5 Essential Steps For Sorting Your Finances
Getting on top of your finances is always sensible. Unfortunately, most of us don’t take those precautions until we’re forced to. Here are 5 simple steps to take to ensure your fiancés are in order before you apply for your loan:
1. Get Organised
Step number one is to get organized. Sort out your current assets and liabilities. Next, draw up a draft monthly cash flow projection so you know where your money is going or identify the gaps in your knowledge.
2. Review Your Credit Report
If you’ve ever applied for a loan or credit, there will be a report on your credit history with one of the credit agencies such as Experian Credit Report, Equifax.com.au, or CheckYourCredit.com.au Illion (formerly Dun and Bradstreet).
Your credit history plays a significant role in the loan application review process. If you don’t have a current copy, order a free annual copy now. Remember to order a credit report each year and check they are accurate.
3. Financial Housekeeping
No one enjoys sorting through his or her financial paperwork. However, your loan provider will expect you to be on top of your financial game. So, make sure you have all your loan and credit card statements, mobile phone and utility bills together with current bank statements and insurance policies.
Have to hand details of your current mortgage or loan payments, your tax returns, together with any other financial debts you are required to pay on a monthly, quarterly or annual basis.
4. Create A Household Budget And Stick To It
A budget is an essential step in getting your finances in order and in giving your potential loan provider reassurance that you have your finances under control.
You can track your fixed monthly expenses in a spreadsheet or via an app such as Pocketbook, TrackMyGoals or Expensify. These apps can also track discretionary expenses such as entertainment, take away meals and clothing.
Plug this information into a draft budget. Once you’ve mapped out your budget, stick to it. Compare your actual spending each month against your budget. This will quickly show up problems.
Expense-tracking software like Expense Receipt, myDeductions or Squirrel Street can take the pain out of budgeting.
5. Reduce Your Debt Levels
Potential lenders focus on overall debt levels as well as your capacity to repay. So, consolidating or reducing your debt levels is a necessary step in getting your finances in order.
Substitute a debit card or cash for purchases in place of your credit card. Once you’ve paid off a credit card, don’t destroy it as this impacts your credit score, don’t use it instead.
These 5 simple steps will ensure your finances are in order before you apply for that loan. While there may be other financial goals to plan for such as retirement or providing for your children, having control over where your money goes each month and ensuring your debt level is manageable will make your loan application process smoother and easier for your potential lender to assess.