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From pre-qualifying to getting funded, taking out a personal loan can be pretty painless. Many lenders offer smooth online applications and same-day funding.
Managing a personal loan successfully, however, requires understanding how the payments change your monthly budget and creating a clear plan to pay off the loan.
Here are seven things you can do to make your personal loan easier to manage.
1. Build your budget
You want a clear picture of how your loan payment impacts your monthly cash flow. Take a look at your budget to get that insight.
Some people use a budgeting app to track their spending, while others prefer a spreadsheet or another money-tracking system. What’s important is to choose a budgeting plan that fits your financial priorities and is simple enough to stick to.
Know where every dollar goes
Find ways to spend more on the things you love, and less on the things you don’t.
2. Choose where to hold your loan funds
If you’re consolidating credit card debt, some lenders will offer to send your loan funds directly to your credit card issuers. Otherwise, keeping the loan funds in a checking account is best for easy access.
You could use your main checking account for loan funds or keep the money in a separate account. If you don’t plan to spend the funds all at once or you’d struggle to mentally divvy up the balance between what you can and can’t spend, using a separate account for personal loan funds may be best.
» MORE: Find the best checking account
3. Set up automatic payments
Setting up autopay makes managing your personal loan payments easier. Many lenders offer rate discounts between 0.25 and 0.5 percentage points to borrowers who set up automatic payments, which can lower payments a few dollars each month.
Automatic payments also help you avoid missed payments — which often result in late fees — and make paying your monthly bills effortless.
4. Tell your lender if you can’t make a payment
Even if you fully intended to make your loan payments as agreed, sometimes life throws an unexpected snag. You may be tempted to hide from your lender if you can’t afford a loan payment, but it’s far better to contact them as soon as possible.
Many lenders offer hardship programs for borrowers who struggle financially after a job loss, illness or death in the family. Depending on your lender, you may be able to delay or reduce payments, or even have part of your principal forgiven in rare situations.
If your lender agrees to deferment, your credit score shouldn’t be impacted while your payments are on pause, though your loan may be listed as in deferment on your credit reports. Interest typically continues to accrue while your loan is in deferment.
5. Be strategic about extra payments
Finding extra money in your budget to put toward debt repayment is typically a win, but don’t automatically throw those funds toward your personal loan payments.
Instead, think about your debt payoff strategy and whether the extra money should go toward high-interest credit card balances or other debts first.
If you decide that extra personal loan payments align with your plan to get out of debt, ask your lender to apply the additional money toward your loan principal only. This helps lower your loan balance and reduce interest costs.
6. Watch for refinancing opportunities
If your credit score or debt-to-income ratio improves at some point during your repayment term, you may be able to refinance the loan at a lower rate.
For example, if you’ve been making on-time payments toward a loan for a while and your credit score has improved, you might qualify for a lower rate, which can save money on interest.
Refinancing involves taking out another loan to replace your current one, so make sure the savings outweigh the costs. If your new loan extends your repayment period, you could wind up paying more interest over time.
» MORE: How to refinance a personal loan
🤓 Nerdy Tip
Interest rates on personal loans tend to hold pretty steady, but it's always a good idea to check for lower rates. NerdWallet tracks average personal loan rates from online lenders, banks and credit unions each month. 7. Weigh the pros and cons of paying the loan off early
As you near your final payments, it can be tempting to pay the loan off quickly, but take a moment to weigh the pros and cons. While it may feel satisfying to get rid of your debt, wiping out your savings to do so could be a financial trade-off.
Consider whether the money you’d use to pay off the loan early could be better used in another way — to pad an emergency fund, for example.
Prepayment fees are rare in personal loans, but it’s a good idea to review your loan contract for any early payment penalties.
Frequently Asked Questions
What is the smartest way to pay off loans?
Two smart ways to pay off loans and other debts are the debt avalanche and debt snowball methods. With the avalanche method, you first pay off debts with the highest interest rates. The snowball method tackles your smallest debts first. You keep going, debt by debt, until you’ve paid them all off.
Is it worth paying off a personal loan early?
Paying off a personal loan early will save you money on interest, but it may not be the best choice if it sets back other financial goals.
How can you get out of a personal loan you can’t afford?
If you can’t afford your personal loan, contact your lender right away and ask about relief programs that let you reduce or skip payments. You could also seek nonprofit credit counseling to help you manage debt over the long term.
