If you need emergency financing to get you through a tight spot, obtaining a personal loan is often the easy part. There are reputable online lenders like westernshamrock.com that enable you to begin the process online and make the money available to you shortly after approval has been granted. The hard part is making sure you manage your personal loan payments in a responsible and productive way.
Sometimes folks whose only credit experience is with credit cards can be lulled into a sense of complacency. Why? Because credit cards give you the option of paying a lot or paying a little every month. So, if cash is tight you can make a minimum payment and forget about it. Personal loans, however, come with a fixed monthly payment. So even if cash is tight, you still need to find the money necessary to make the payment.
In this post, we’re going to provide some tips on managing your personal loan payments in order to avoid problems.
8 Tips for Managing Your Personal Loan Payments
- Pay on time - Before we get into any of the ways to finesse the subject, this has been established as the one non-negotiable element. You borrowed money to improve your situation, not to make it worse. But if you pay late or miss payments, that’s what you’ll be doing; making things worse. Late or missed payments will send shockwaves through your future that will be felt for years in the form of higher interest rates on credit cards and car loans, declined applications and perhaps even the inability to secure a mortgage. It’s simply not worth it. The rest of these tips will help ensure you’re able to make your loan payments on time.
- Make a budget - The best thing to do is get an idea of how much your monthly payment is likely to be and then devise a preliminary budget based on that prior to actually applying for the loan. This way you can hit the ground running once the loan money arrives. However, should the money arrive without you having a budget in place, devising one should become the immediate priority. Failing to do so could result in late or missed payments. And, as we discussed above, that is not acceptable.
- Don’t add to your debt load - So you’ve established a budget that enables you to make all your personal loan payments on time. Great. Shortly thereafter, however, you find yourself face to face with the latest 85 inch 4K Ultra HD TV and decide you have to have it so that you can invite friends over to watch those big games. The smart thing to do is to slowly back away from the temptation and go back to your life with your budget intact. The best way to ensure you don’t give in to counterproductive impulse purchases is to leave your credit cards in the home safe when you go out.
- Know where you’re going to put the money before it arrives - If you are taking out a personal loan for the purpose of consolidating debt, then you know where the money is going to go. However, people sometimes take out personal loans for more nebulous purposes. For instance, maybe they exhausted all their cash due to an unexpected medical emergency and now they need to borrow money to cover daily expenses. If you tie up the money in a high-yield savings account or certificate of deposit, it will be difficult to access. A better idea is to simply put it in your checking account where you have ready access to it. Of course, you will need to avoid the temptations that come with having all that cash on hand. So it may, in fact, be to your benefit to put some or all of it in a separate checking account you use solely to pay major monthly expenses like rent, car payments and the like.
- Consider automatic payments - If you have reason to think you might be tempted to waiver from a disciplined repayment schedule you might want to consider arranging for automatic monthly payments. Many lenders will offer a slight decrease in the interest rate on your loan if you agree to automatic payments. So you wind up with a win-win situation. Your loan payments get made on time every month and you save money over the life of the loan. Being realistic about yourself and then acting in your own best interest can pay handsome dividends. But even if you’re not the type to ever miss a payment, automatic deductions can be a smart idea.
- Consider refinancing - This type of personal loan is not a business loan nor is it a mortgage-style 30-year loan. Instead, it likely has a term of anywhere from 1 - 4 years. Perhaps a bit longer. For that reason, it doesn't occur to most people that they might try refinancing their personal loan in order to reduce their monthly payments. But in some cases, it may be possible. For instance, if you've been diligent in making your payments for a couple of years, it might have generated a slight uptick in your credit score, which you could take advantage of. Not everyone will qualify for or benefit from refinancing a personal loan. But it’s a possibility worth considering that could save you money.
- Understand the ramifications of early repayment - It’s not unusual for personal loans to come with fairly significant early repayment penalties. Lending institutions include these because, hey, they loan money to make money (interest). And if you pay the loan off ahead of time they’re losing out on some of that interest. So they make up for that potential loss by including early repayment fees. Always weigh the potential penalty against the potential gain of early repayment. It may just be better to stick to your original payment plan and put any extra discretionary income you have to work elsewhere.
- Recognize the signs of trouble - If you find yourself in a position where you’ve made a couple of late payments or missed a payment altogether, you may be heading down a very slippery slope. That’s especially true if you’re missing payments because you’re redirecting that money toward discretionary purchases. Before things get too far out of control, talk to a credit counselor. There are many counselors out there that offer their services for free. They can help you stop the bleeding and get back on the straight and narrow before you do too much damage to your financial reputation.
The Bottom Line
Personal loans can help you get past a difficult period, pay unexpected medical bills, retire holiday debt and much more. But they’re not free money. And if you don’t approach repayment in a responsible way, you can wind up doing yourself more harm than good. As such, you should take the time to consider how you will manage your loan payments before you sign on the dotted line. By taking the above tips to heart you can ensure you make all your payments on schedule and that doing so will not interfere with the rest of your life.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.