I know what you’re thinking. “Dude, are you sure you’re writing for the correct blog? I thought you guys were all about hooking people up with lenders and yay personal loans! If I avoid a personal loan, aren’t you doing everything wrong?”
I prefer to think of it in terms of helping people get themselves into a better financial situation. Sometimes a different perspective can help clarify our options. And if I slip into motivational mode a little here and there along the way, forgive me – it’s my nature and I can’t help myself.
How Can I Avoid A Personal Loan?
If you don’t owe anyone money, we’d like to help you avoid getting into unnecessary debt. If you have poor credit, we’d like to guide you through improving your credit rating so when you do need a loan, you can get one on better terms. And if you’re feeling a bit financially shaky, but you’re not sure how to wrangle things back on track, I’d like to offer encouragement and help you avoid a personal loan you might not need now so that you’re in a better position if you choose to go that route in the future.
Obviously, if you want a loan, we’ll help connect you to someone legit and let you work it out with them. (We don’t actually loan money or sell you anything ourselves; we don’t even have mugs or t-shirts).
But wouldn’t it be better if you could avoid a personal loan to begin with?
Avoid A Personal Loan By Maintaining A Personal Budget
Personal loans aren’t bad. They can help consolidate debt, lower your overall interest rates, handle unexpected medical or repair bills, finance large purchases, and even help you build (or rebuild) your credit. But they’re not magical solutions, either. If you’re spending more than you make, no variety or combination of personal installment loans is going to solve that. In that situation, you don’t need another loan; you need a good budget.
Budgets don’t all look the same. My wife is very methodical about hers. She maintains a detailed spreadsheet, with formulas and everything, and only takes on debt when it serves a very specific purpose. A rough month for her is one in which she’s not able to put the usual amount into savings. At any given moment she can pull up information about any of it on any device she’s using.
I, on the other hand, find it both practical and essential to use several credit cards – regularly, but not recklessly. My income varies throughout the year, so access to revolving debt via modern plastics is a practical way for me to keep things consistent. I have a good idea of my obligations each month, and years of crushing debt and personal humiliation taught me to budget accordingly. I use legal pads and I scribble a lot.
Why am I telling you this? Because the number one way to avoid a personal loan is to budget yourself, even if there’s more than one effective way to do this. I’m not trying to guilt you out of anything beyond basic shelter and a few dry crusts of bread. I’d rather you be happy than rich. But a tangible budget in any format, hard copy or digital, forces us to acknowledge where our money is coming from and where it’s going – Adulting 101.
The Power of the “B-Word” (Budgets)
Although it’s not important that your budget looks or operates exactly like mine (or my wife’s), let’s look at a few steps towards organizing your own. First, though, a disclaimer. I don’t want to go all “safe space” hugs-and-puppies on you, but considering we’re mostly talking about numbers, it’s surprising how many “feels” can pop up – especially if you haven’t done this before.
The steps themselves aren’t complicated, but some of us find them very difficult. Money and how we spend it can be personal and emotional to discuss. It can challenge our self-worth and reveal things about ourselves we may not want to know. Some of us get defensive (I always did, back in the day), some of us get angry, and some of get depressed and don’t want to think about it at all.
I told you I was a motivator. You feel better already, don’t you?
I’m not trying to be a downer. It’s just that emotions, like most things, are easier to deal with if we acknowledge them up front. Are you worried about what some basic math might reveal if you run the numbers? I get that. I’m a big fan of denial – just ask my first wife. It’s just that denial doesn’t work.
A few of you have no idea what I’m talking about right now. To you, it’s just numbers and practical decision-making and what’s the big deal? The way to avoid a personal loan is obvious – don’t put yourself in a position where you might need one! For the rest of us, though, making a personal or household budget can be an act of messy courage. It can take nerve. Grit. Moxy. Some have even compared it to overcoming drug addiction.
Alright, let’s grab some tissue and a glass of wine and let’s get started.
Creating Your Personal (or Family) Budget
— Loanry.com | Loan Shop ? (@LoanryStore) July 25, 2019
Step One: Gather Information
This might take a few hours or a full month. You’ll want pay stubs, utility bills, mortgage information, car payments, grocery store receipts, medical bills, credit card statements, ATM receipts, and anything else related to money coming in or going out.
Some experts recommend computing your own debt-to-income ratio. It’s a useful exercise, but I’m not pushing you that far yet. Right now we’re just trying to get a clear list – on paper or screen – of what’s up with our finances these days.
Why? Because many of us simply don’t realize where our money goes. We may think we don’t eat out very often, but your credit card statement says otherwise. We may think we’re careful with our cash, but this says you made a $300 withdrawal two weeks ago and you have $24 in your wallet and no idea where the rest of it went. You want to avoid a personal loan? Know your own spending. In detail. With honesty.
Please understand, I’m not telling you how to spend your money. I’m suggesting that you should be making conscious decisions about how to spend your money, not just improvising and hoping for the best. I’ve been there, remember?
Step Two: List ALL Expenses
Some monthly obligations are fairly consistent – your car payment, your house payment, etc. Others vary from month to month – utilities, groceries, gas, etc. Write them all down, with the most accurate figures you can manage.
You’ll adjust this part several times in the first few months. That’s OK; it’s part of the process. Expect some of your estimates to be off, and for there to be a few surprises. That’s one of the major reasons we’re even doing this. That doesn’t mean you’ve done it wrong; it means you’re doing it better and better as you learn.
If you determine that you make enough to cover the essentials with a little left over for the optional items on your list, you can easily avoid an unsecured personal loan online or any other sort of new debt as long as circumstances don’t change dramatically. So, yay!
Step Three: Compare Your Income To Your Expenses
If emotions haven’t kicked in yet, this is the part where they usually do.
In a perfect world, you’ll have at least 10% more income than expenses. If that’s the case, congratulations! You win at America! Skip to a post about savings accounts and planning for the future.
If your world isn’t perfect, hopefully, your income and your expenses match up pretty well. If so, feel free to skip to the money-saving ideas below to try to reach that 10% or better balance above.
For many of us, however, our expenses are apparently larger than our income. That’s not ideal, but it certainly would explain a lot. It’s not that you’ve failed or you’re doing everything wrong; you just literally don’t have enough money to do everything you’re currently doing.
Now, if things have already gotten too severe, and things are being repossessed or turned off, you have more immediate concerns than how to avoid a personal loan. Before we can talk about digging yourself out, we need to stop the proverbial bleeding and stabilize the patient – in this case, your economic life. This may require reaching out to local social services, religious organizations, or charity groups when you need help paying bills.
I’m going to assume it’s not quite that bad, however, and that you’re somehow getting by enough to keep digging yourself deeper and deeper into debt. Maybe it’s those student loans, or even worse – medical bills. Maybe you lost your job at the worst possible time, or just came through an ugly divorce. Whatever the situation, you’re in debt and the situation is unsustainable. If it doesn’t start getting better, it’s going to get much, much worse.
Either way, stay with me through Steps Four and Five. There’s always a way through. It may not be pretty or fun, and you may not avoid a personal loan of some sort along with some lifestyle adjustments, but it’s doable.
YES, for you. YES, in your situation. Why are you even arguing with me in your head like that? How rude.
Step Four: Prioritize Your List
This part tends to start easyly and quickly gets weird. Your house payment should go at or near the top, along with your car payment (if you have one). Utilities, although the electric seems a big high – is there something we can do to get that under control without making ourselves too miserable? Groceries are important, although it looks like we got $40 cash back on this one and another $60 a week later. Where did THAT money go?
What’s this recurring charge on the credit card from some place I’ve never heard of? When did the cable bill go up? Why didn’t we record this check? I have the amount but no idea to whom it was written or why. Can you even listen to this many new downloads in one month? And I’m glad you’re paying for legal streaming instead of using your cousin’s log-in, but are you really likely to watch Hulu AND Netflix AND CBS Streaming AND…?
You get the idea. If we want to avoid a personal loan, we’re going to need to get a grip on some of these miscellaneous expenses. We’ll come back to this in a moment, but first, let’s finish figuring out a budget that we’re spending every month.
It’s helpful to have multiple columns. I always start with “Non-Negotiables”: house payment, car payment, any outstanding loans with fixed payment amounts each month. These will be largely the same every month for the foreseeable future. That may not make them easy to pay, but it does make them easy to anticipate.
I put utilities and credit card payments in a second column I call, quite cleverly, “Credit Cards & Utilities.” These may not seem related at first (and you don’t have to combine them for your own budget), but they’re essential to pay each month, on time, and yet their amounts vary each cycle – sometimes widely. (Side note: if your local utility companies offer one of those payment averaging plans so that the amount due each month doesn’t fluctuate quite so unpredictably, DO THAT.)
Third are things which are “Important,” but over which we have at least some control. Groceries must be bought, but meals for a week might cost $60 or $200, depending on your choices. Gasoline, clothing, anything you can influence but not do completely without.
I used to combine everything else into “Other,” but I’ve recently found it more helpful to be more specific. “Optional But Useful” includes stuff like my cell phone payment, cable, internet, etc. Technically we can live without these, but as a practical matter… well, personally I’d probably spend way more on other things if I didn’t have cable and internet. Still, I may not need it all. “Fun Stuff” is eating out, movie tickets, concerts, Amazon downloads, books and magazines, etc. Stuff we could easily survive without but makes life more fun. Finally, I have “Unpredictables.” It’s not good grammar, but it seems this column always has something in it nonetheless. It’s also rather difficult to budget for; stuff which goes in this column tends to be, um…
I probably don’t need to finish that sentence, do I?
You may find a slightly different structure works better for you. It’s your budget – organize it as you see fit. But DO organize it. And then DO move on to Step Five. Remember, we’re trying to avoid a personal loan, even if things aren’t looking as rosy as we’d hoped at this point.
Speaking of which, you might not like me as much after this next part. Please know that I still love you the same.
Step Five: Time To Make Some Difficult Decisions
Do you know why most of us have so much trouble losing weight? There are plenty of reasons, but one of the biggest is that you don’t have to eat badly all day every day to have a weight problem. You probably eat nothing at all during the eight hours you’re asleep. You may eat quite reasonably – maybe even exercise a bit – during fifteen of the sixteen hours you’re awake. The problem is that the remaining hour. Thirty minutes for fast food at lunch (“just this once because what a day!”) and another half-hour in the evening when you decide to finish off the leftovers (“no one’s going to eat them anyway if we save them”) and the diet is blown.
It’s truly not fair. Take it up with the Universe, I guess.
One great way to get your debt off your back is to use the debt snowball method. It really helps you reach your goal, but you have to stay with the methodology of paying off the lowest debt first.
Bad spending choices are the same way. It’s not that most of us are spending wildly all day, every day. It only takes a few weak moments a week to reverse whatever progress we’ve made. It’s especially bad if we convince ourselves we’re going to radically change how we spend money – we’re not merely going to avoid a personal loan, we’re going to climb out of debt and into a comfy retirement package before the next snowfall! You know what happens when we try this with diets – eagerness, enthusiasm, energy! For about five hours! Then… we slip. We fail. It’s all over. Forget it. It’s never going to work. I quit.
Or maybe that’s just me.
I hope it’s not just me. (Tell me it’s not just me?}
Avoid A Personal Loan By Cutting Expenses
Just like improving our eating habits, we’re not going to talk about revolutionary changes. If you make those sweeping fixes instantaneously, that’s great! Good for you. For the rest of us, though, I’ll conclude with ten of my favorite ways to avoid a personal loan by shifting the balance between our income and our “out-go.”
1. Take your lunch one or eat at home a few more days a week. If you eat lunch out every day, take a sandwich twice a week. It won’t kill you. If you take the family out twice a week, cut back to once. Don’t shun everything you enjoy; just look for ways to shift the balance.
2. Cut back on smoking, drinking, or whatever other expensive vices you may have. I’m not lecturing you on the downsides of vaping or alcohol or whatever. But as you well know, that stuff is expensive. If quitting isn’t realistic, see if you can cut back by a quarter. Maybe a third. If you like to have a glass of wine or a beer in the evening, buy it at the grocery store and have it at home – restaurants charge huge mark-ups on that stuff.
3. Carry less cash. If you need to have a few bucks for unexpected situations, that’s fine, but try to limit the amount of spending you can’t document at the end of the week. Ask for receipts even when you stop and the convenience store for a snack and a drink. It’s your money; spend it how you like – but be willing to own it and keep track of it.
4. Plan travel to limit wasted driving. If you have kids, you probably already do this out of the necessity of keeping everyone’s schedule straight. If your kids are older, or you’re child-free (congrats!), however, it’s easy to get casual about driving across town to get your hair cut, then home. To the post office, then home. To the store, then home. That’s fine, but it adds up in both gasoline burned and wear and tear on the car or truck.
5. Go easy on the groceries. I understand why you buy bottled water, but it’s crazy expensive compared to tap water, even after a cheap filter from the hardware store or one of those fancy pitchers. If the store brand of whatever you’re buying tastes crummy, avoid it, but come on – is it really that different? (Half the time they’re literally the same, other than the packaging.) And for goodness sake, eat those leftovers. Better yet, make extra on purpose and freeze it for next week – that way you’re buying in quantity (cheaper) and more likely to eat at home when you’re in a hurry because all you have to do is reheat.
6. Cancel that gym membership. Unless you’re really going – regularly. And going already, not theoretically starting next week.
7. Use your local library and resale shops. How many times are you going to read that book? Are you sure you need to own that movie? Go check out your library – they’ll be thrilled to see you, and it’s all free. When you buy, try the used bookstore, used CD shop, etc., first. Even on Amazon you should browse used options before you decide. Once you get it home, it’s “used” anyway.
8. Pay your bills on time. I realize this sounds like a strange one, but late fees and interest and such add up crazy quickly on most credit cards, utilities, or other commitments. It’s one thing if you simply don’t have the income to make it happen (see above), but far too often it’s more that we lose track and simply don’t keep up with what’s due and when. Defaulting on your existing loans or obligations is counterproductive and will catch up with you. Plus, it’s just wrong.
9. Check out online rebates, coupons, prescription savers, etc. Don’t waste hours poking around for fake bargains on the internet, but major department stores and many name brands put significant coupons on their websites for stuff you were going to buy anyway.
10. Call everyone you owe and start cutting. Don’t renew that magazine. Cut some features from your cell phone plan, cable TV, or whatever it is you do on the internet. I’m not suggesting you bail on something to which you’ve already committed, but you’d be surprised how flexible many providers get when you call to cancel or reduce your service. (This sometimes works with stuff like car insurance as well.) Do you really watch that much HBO? Need that much data on all four phones? Look over every bill, whether online or mailed to you.
Maybe your best friend keeps one streaming service and you keep the other one, then you trade off watching at each other’s house. That saves you even more because you’re not out buying overpriced beer at some sports bar before your overpriced snacks at the movie teenagers will ruin by talking the whole time anyway. That’s a TRIPLE WIN.
BONUS: If you want inexpensive fun one evening, search the internet for other ways to save money. Surely there will be a FEW idea I haven’t mentioned which would work for you. And they’re free.
If you decide it makes sense for you in spite of all this to take out a personal loan to consolidate other debts, well… it turns out we can help with that. You don’t have to loan shop alone. We’re actually experts at helping folks like you find options for unsecured personal loans online. You may feel like things are desperate right now, but trust me – it won’t help if you rush in blindly and get taken advantage of by some sketchy “fast cash” place behind the gas station or any of the many online loan scams out there. Let us help you find a lender only if you need it, but your first goal is to avoid a personal loan.
In the meantime, don’t give up. It might take a while, but you can do this. Really.
Blaine Koehn is a former small business manager, long-time educator, and seasoned consultant. He’s worked in both the public and private sectors while riding the ups-and-downs of self-employment and independent contracting for nearly two decades. His self-published resources have been utilized by thousands of educators as he’s shared his experiences and ideas in workshops across the Midwest. Blaine writes about money management and decision-making for those new to the world of finance or anyone simply sorting through their fiscal options in complicated times.