Are you considering taking out a personal loan, but the thought of becoming overwhelmed in debt is putting you off? Well this is the right attitude to have. It’s good to be cautious. Personal loans do come with their inherent risks, but if you’re aware of them and keep on top of your finances, you may stand to benefit from the opportunities personal loans can present.

Here are some tips for navigating Australia’s personal debt landscape when choosing the right loan to match your needs and budget.

Australia’s growing personal debt

It’s no secret that Australia has one of the highest personal debt levels in the world. So why are so many Aussies looking to accumulate mortgages, car loans, student loans and credit cards? The simple answer: the cost of living continues to rise and salaries aren’t keeping up.

This might sound daunting, but accumulated debt can be managed as long as you stick to the following important principles:

· You don’t borrow beyond your means

· You don’t become careless with your finances

· You have a clear plan to repay your debt.

Personal loans have many advantages and have become popular among Australians as they offer the freedom to buy now and pay later. This could mean upgrading to a new car, embarking on a trip of a lifetime or undergoing important medical procedures.

Other reasons for taking out a personal loan may include:

· Preparing for a baby

· Covering unexpected lump sum expenses

· Paying for a wedding

· Starting a business

· Remodelling your home

How to avoid getting into debt you can’t afford

Whatever your reason for requiring a financial crutch to cover you temporarily, make sure to consider the following to minimise the risks: 

· Work out the exact amount you need to borrow: Remember, for every dollar you borrow, you’ll have to pay a percentage back in interest. More is not more in this case, so try to be as precise as possible when determining how much you require.

· Calculate whether you can afford the minimum repayments: Depending on your financial provider, you’re required to make a minimum repayment on your loan every week, fortnight or month to avoid incurring any late payment fees.

· Decide how often you want to make repayments: This will allow you to work around your payment cycle and ensure you always have the funds to make the minimum repayment without stretching yourself too thin.

· Figure out how long the loan will take to pay off: The longer your loan lasts, the more interest you pay, so it’s important to consider this in the beginning to map out your expenses for the coming months or years.

· Make a budget: Do your research and look at a few different loans to get an idea of the interest you’ll pay each month. Compare this against your income stream and any other expenses to determine whether you can manage the debt without compromising on other important expenses.

· Find the right loan: Once you’ve done all of the above, you should have a solid idea of the type of personal loan you can manage. There are still some factors to consider, however, so make sure you compare your options carefully to find a loan with low interest rates and fees, realistic minimum repayments and no hidden costs. You’ll also want to decide whether you’d prefer a loan with a fixed or variable interest rate.

Managing the personal loan risks

Now that you’ve decided on a loan that aligns with your budget, there are a few other steps you can take to ensure financial security:

· Use a repayment calculator: A personal loan repayment calculator can be your best friend when it comes to cutting through the numbers. Simply enter in your loan details, and play around with the specifics to calculate how much you may need to pay and by when to keep on top of your repayments.

· Consolidate any existing debt: If you’ve already accumulated debt from a car loan and a credit card, for example, then some personal loans will allow you to consolidate all of this into one account. This will streamline the overall repayment process and may offer some cost savings if the new personal loan has a lower interest rate.

· Make extra repayments: Don’t be afraid to sink a little extra cash into your personal loan to help reduce your debt sooner. If you find yourself with more budget thanks to a tax rebate, work bonus or even an inheritance, putting this money towards your loan means you’ll end up paying less interest in the long run.

Make an informed decision and compare the many personal loans available to find one that will minimise risk and provide the financial flexibility you need.