4 essential tips for managing your personal loan

A personal loan could be a stepping stone to a brighter financial future. Once your loan is approved and funded, make it a priority to handle it like a pro. Mastering a few simple steps could help you minimize the cost of your loan and protect your credit standing at the same time. 

1. Read your loan contract

You know what a personal loan is, but do you know what fees you could be charged, and when? Do you know who to call if you have questions about your loan in the future? This should go without saying, but read the loan agreement your lender sends you. It spells out your rights and responsibilities—you signed it when you got your personal loan.

Your contract or loan agreement is where you can find all of the details about your loan:

• The interest rate

• How many monthly payments you need to make

• The total loan cost, including the amount you borrowed and interest charges

• When a payment is considered late, and how much the late fee is

• The origination fee, which is the lender’s fee for making the loan

• Information about who to contact about your loan

• Whether there’s a prepayment penalty (a fee for paying off the loan ahead of schedule)

• How disputes will be settled if there are any

• What happens if you fail to repay the loan

Your contract might also tell you if your lender has any hardship or loan forbearance programs in place—just in case. If you hit a rocky financial patch, these programs could allow you to pause or temporarily lower your personal loan payments until you get back on your feet. 

Even if you’re financially set right now, you never know what might happen. Being able to work with your personal loan lender in case of unforeseen circumstances is invaluable. 

2. Pay on time

Paying on time offers multiple advantages. For one, you avoid late fees. You could also improve or maintain your credit standing. Your payment history is a major factor in your credit scores.  

Prioritize your payment due date and pay at least the scheduled payment. Consider setting reminders on your phone so you don’t forget to pay. You might be able to set up automatic payments from your bank account. This means that on the same day each month, your bank will automatically send the loan payment to your lender. Some prepaid debit cards may also give you the option of automatic payments if using your bank account isn’t an option.

If you think you might not be able to make a payment on time, contact your lender as soon as possible. Lenders understand that these situations can happen and may be willing to work with you if you’re having temporary financial issues. 

3. Pay attention to your budget

Managing a personal loan effectively starts with your budget or spending plan. Debt payments are a need, not a want.  

If you don’t have a set budget yet, it’s easy to make one. Start by tracking how much you spend. Use your credit card, bank account, or other financial statements and total up what you pay for various expenses each month. 

Here are expenses that might be non-negotiable (but you could still lower some of them if money is tight):

• Housing

• Groceries

• Utilities

• Transportation

• Debt payments

• Insurance premiums

• Healthcare

• Childcare

If it feels like funds are running short, look at your spending for areas where you could cut back. Categories that aren’t on this list are often great candidates for reducing spending. For instance, if you regularly eat at restaurants, you might save money by cooking more meals at home.  

4. Understand when it makes sense to refinance or consolidate

Even if you’re managing your personal loan payments comfortably, you might still have room for improvement in your overall financial picture. If circumstances change, like an increase in your income or a significantly better credit score, you might think about refinancing your current loan or consolidating it with other debt you have. 

Refinancing a loan means you take out a new loan and use the funds to pay off your old one. In most cases, you’ll get a new interest rate and loan terms. Going this route could be helpful if you qualify for better terms like a lower interest rate that could save you money, or if you need to get a lower monthly payment amount. (Note that getting a lower monthly payment may mean extending your loan term. The longer you take to pay off a debt, the more you could pay in interest.)

If you have multiple debts you want to roll into one payment, debt consolidation could be the better move. Benefits of debt consolidation include:

• Simplify your finances. Instead of multiple due dates, you have one easy payment.

• You might lower the cost of your debt if you qualify for a lower interest rate. 

• You might get a lower monthly payment, especially if you’re juggling multiple debts with high minimum payments.

• You could improve your credit standing if consolidating helps you reduce credit card debt and avoid making any late payments.

Managing your personal loans efficiently means taking your financial future into your own hands. You may face some bumps along your journey. But with a few well-proven tactics could help you navigate common challenges, stay organized, potentially save money on your loan, and make the road to financial empowerment a little smoother.