4 Best Practices for Managing Your Personal Loans

New York, USA, August 8, 2024 – Personal loans can be a great way to get the funds you need for major purchases, to consolidate debt, or to take that much-needed vacation. Getting a personal loan does not have to be difficult, even with less-than-perfect credit. Here are four “best practices” on how to manage them.

1. Create a budget that includes loan payments

Adding up income and expenses to create a monthly budget is one of the best things you can do for yourself. Knowing how much is coming in and what’s going out provides peace of mind that’s not available when you’re simply spending without limits.

Include the monthly installment payment for your loan in your budget. If you haven’t applied for a personal loan yet, use the budget to determine how much you can afford to pay each month. You may be able to afford more (or less) than you think.  It’s also a good idea to plan for contingencies, so don’t request a loan for more than you need.

2. Automate your monthly installment payment

Personal loans are typically installment loans that need to get paid back in equal monthly installment payments. For the best results, put your monthly loan payments on autopay. That’s important because a missed payment could trigger late fees or a negative report to the credit bureaus.

The best way to do this is to schedule your payments on autopay when you first get the loan. Some lenders also allow you to choose a payment date that works best for you. You can schedule your payments around the same days you get paid to ensure you have funds available when the transaction automatically hits your bank account on the day you selected.

3. Pay extra each month when you can

Managing your finances with a budget and having all bill payments on autopay can help you see how much extra money you have each month. Put some of that into an additional payment on your loan if you can. Don’t take food off the table. Just do what you can.

Paying an extra $50 a month on a $200 a month loan adds up to three extra payments per year. That can cut a five-year loan down to four years and save you a bundle in interest payments. You can also use extra funds like your tax refund, annual bonus at work, or money earned from working overtime to make extra payments on your loan.

4. Refinance if interest rates go down

Interest rates have been rising for some time but won’t stay that way forever. Keep an eye out for a decline in rates and look into refinancing your loan when it happens. A drop of a few percentage points on a three to five-year loan can add up if you get it.

One caveat to this tip is to watch out for refinancing charges or early repayment fees. When you refinance a loan, you’re essentially paying off the old loan to get a new one. Some lenders charge extra for that. Do the math to make sure refinancing saves you money.

The Bottom Line

Personal loans feel like a win when the money first hits your bank account. They can quickly become a loss if you don’t properly manage those funds. Create a budget so you know what you can afford for a monthly loan payment. Automate your monthly installment payments and pay extra when you can. Refinance if interest rates go down, but only if it saves you money.

 

Contact Information:
Name: Sonakshi Murze
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Job Title: Manager