Managing your personal loan payments should be a prime concern. Whether you’ve just started looking into getting a loan or already approved, you want to develop some smart money habits to avoid a financial mishap that can create issues.
Budgeting for Your Personal Loan
When you have a proper budget in place, you are better able to manage the incoming and outgoing funds. Working within your budget helps you to manage your cash flow and make any debt payments easier to account for, while keeping you on track to pay off your debt. Many will use a 50/30/20 budget to manage things, where 50 percent of your income goes to necessities, 30 percent to wants, and 20 percent to debt. A worst-case scenario is your lack of proper planning that causes you to take on more debt in order to make up for things.
Paying on Time
To avoid any late fees or penalties, or a hit to your credit score, you want to ensure that you meet your obligation and pay those scheduled payments on time. When you’re working with a budget this can make things easier to manage your payments and finances overall. Using automated payments or autopay can also help to make payments on time. Another option is using some kind of calculator reminder.
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Only Borrow What You Need
To properly manage your loan payments, you should only borrow as much as you might need since the more you borrow the higher your monthly payments are likely to be. When thinking of borrowing, it might cross your mind there are other things you might want, leading you to consider borrowing even more. But this can lead to difficulties, so you should think carefully about what you truly need the loan for. Your payments should fit within your budget.
Pay More than the Minimum
With many lenders you have the option of paying more than the scheduled payment amount, so when you can afford to pay more than the minimum payment, it’s in your best interest. Not only does this help you to repay your personal loan early, it can reduce the total amount you would pay in interest. You just want to make sure that your agreement does not include prepayment penalties when doing so.
Consolidating Your Debt
If you have multiple sources of debt, another way to help manage your finances and make your payments on time is using a personal loan for debt consolidation. This is where you add up any credit card debt and other loans so you can take a single personal loan to pay off the other outstanding debt. Ideally, the rate of your debt consolidation loan is lower than the average APR of your current debt. This also makes it easier to manage your payments and be on time each time because you only have a single payment to be concerned about now.
Personal Loan Payment Checklist
- Create and maintain a budget to stay on track
- Set up autopay to make payments on time
- Pay more than the minimum when possible
- Limit your borrowing to what you need
- Consolidate your debt if it looks to benefit
By following these suggestions you can help yourself to more effectively manage your finances, work within your budget, and avoid defaulting on your loan, which would have a negative effect on your credit score and take a long time to recover from.
If you ever find yourself in a situation where you might have difficulty in making payments you should immediately contact your lender. If you know you will be late you should make your payment within 30 days of the due date. Proactively reaching out to your lender is advised. You might be charged a late fee, but probably won’t damage your credit. Sometimes a deferment can be an option as well, but you should check with your lender to see.
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Consequences of Late Payments
If you should end up being late on personal loan payments, you might find your credit score goes down as a result. Adversely, this could also mean that you might have a higher interest rate in future if you were to apply for another loan later. You might also find that your late payment could wind up on your credit report, making another black mark that can affect a future loan application. If you damage your credit you may find later the options are limited and only eligible for high interest bad credit loans which are more costly to borrow.