How to efficiently manage a personal loan

Once you have a personal loan, you’ll have to make monthly payments on the principal, interest and fees. Because the payments are fixed, personal loans can integrate fairly seamlessly into your finances, so long as you have a payoff plan in place. A solid budget and automatic payments can make management a breeze.

Create a budget

Taking on a loan payment means adding to your monthly expenses. If you need to make space for the loan payment in your budget, consider minimizing spending on expenses, such as:

• Streaming or subscription services.
• Gym memberships.
• Leisure travel.
• Alcohol.
• Food delivery or takeout.

Set up autopay

When setting up payments for your personal loan, you often have the option to establish automatic payments. This means the lender will automatically withdraw your payments from a specified bank account or credit card at the same time each month.

Setting up autopay saves you the trouble of remembering to make the payments month after month. Also, many lenders offer an autopay discount that reduces the interest rate on your loan by 0.25 or 0.50 percent.

Consider speeding up your repayment timeline

Paying any extra money towards your personal loan will help you pay off your debt faster. Additionally, paying off the loan early means you won’t pay as much interest and the loan will cost you less — as long as there aren’t any prepayment fees.

You can do this in one of a number of ways:

• Add money to your monthly payment.
• Make biweekly payments instead of monthly.
• Make extra one-time payments when you can.

If your credit improves, refinance your loan

Refinancing a personal loan involves working with a new lender to obtain a loan to pay off the remaining balance on your existing loan. Ideally, when doing this, you obtain a lower interest rate or more favorable payment terms. Refinancing can save you money by reducing the amount of interest you pay over the life of the loan.

However, if the fees associated with refinancing are high, they will reduce the value of taking this step, making it less worthwhile. In addition, you may pay more interest over time if the repayment term is longer.

Calculate the amount you will spend on the remaining payments on your current loan versus the new loan to determine if the cost of refinancing is worth it.

Bottom line

There are multiple ways to manage a personal loan well and save money along the way. A strong budget and setting up autopay can go a long way toward making management painless.

You may not be able to refinance right now and score a lower rate, but that doesn’t mean the method won’t make sense in the future. As your financial and credit health evolves, so do your repayment methods. Keep your options in mind until the day you pay the balance off for good.