How To Better Manage Your Personal Loan Repayments

Taking on a loan is a great way to secure funding for large purchases, education, travel, starting a business and a host of other things. Having more cash available makes it possible for you to get on with what you want to do, instead of having to wait to save the money over a long period of time. With a personal loan, you can finally remodel your house, enroll in a course, buy that car you need or go on that holiday you’ve been dreaming of. However, it’s important to be realistic in terms of what you can pay back on your loan each month and stay in control of your payments.

Most people who take on debt of any size pay their monthly installments without ever thinking of smarter ways to manage their debt effectively. Australians fork over millions of dollars every year in interest and they do so without giving their repayment plan any real thought. The more money owed on a loan, the more you will hand over to the lender every month, so tackling your personal loan repayments as quickly as possible is definitely in your best interests.  

Let’s take a closer look at just a few ways you can develop a smart repayment plan and better manage your loan repayments.  

Create A Debt-Free Plan

Before taking on debt, you need to consider a method for paying off the debt as quickly as possible. A great way to do this is to examine your existing financial obligations and see where you can save some money. You may be able to cut back on how much you are spending on groceries or perhaps you can reduce how much you’re spending on entertainment each month. If you can save money on other things in your day-to-day life, you will have more money to pay off your loan quickly.

If you have other debt, it’s a good idea to continue to pay the minimum amount until the debt is paid. When the debt is paid, take the amount that you had allocated for the loan and apply these funds to your personal loan instead. Repeat these steps with other loans, adding more to the personal loan payment every month until the debt is paid in full. Keep in mind that some personal loans have a penalty for paying the debt off early, so compare the penalty with the amount of interest that potentially would be paid on the loan to determine if it is beneficial to pay off the debt early or not.  

Understand Interest

Borrowers should not only understand the terms of the loan, but they should also understand how interest works. Understanding interest keeps you aware of how much money you pay out each month to the lender in return for borrowing the money. The more you pay on the principal each month the less you give away in interest over time, so making payments beyond the minimum amount always works to your advantage.

Avoid Penalties

When taking on debt, be sure to make yourself aware of any penalties you may incur for making late payments. These conditions are outlined in the contract and can add substantially to the loan amount if for any reason you are late with your loan repayments. Make your repayments on time and avoid paying more on the loan than necessary.

Use The Available Resources

Use a repayment calculator to determine how much you would need to add to your payments each month to reduce the loan amount over time. These calculators are simple to use, and in most cases, only require you to enter the principal balance, interest rate, and the time in months to generate the repayment amount. Knowing how much you need to pay in order to reduce your loan amount allows you to plan your finances accordingly and finish repaying your loan as quickly as possible.

Take Control Of Your Loan Repayments

The goal in devising a personal loan repayment plan is to avoid handing extra money over to the lender in interest or penalties. The best repayment plan begins with a budget that aggressively tackles the loan by creating opportunities to pay extra on the principal every month. As that principal balance decreases, the interest does as well, and the extra savings are yours to save or spend as you choose.