Personal loans can be used for many reasons — consolidate multiple high-interest debts into one monthly payment, fund a large expense, cover a medical emergency, help finance home improvements, or make a down payment on a new car.
But, if you're a first-time borrower, loans can be hard to manage. Fall behind on your payments, or worse yet, default on your loan, and your credit will take a serious hit.
Need a personal loan but not sure where to look? Explore all of your personal loan options by visiting Credible to compare rates and lenders.
Take a look at these 6 tips for managing your loan, and gain control of your finances.
- Create a budget
- Make on-time payments
- Consolidate debt
- Refinance high rates
- Set up autopay
- Pay a little more
1. Create a budget
Creating a budget is the first step in understanding where your money goes each month. When applying for a personal loan, you’ll want to be sure you can make the payments each month, so you don’t fall behind or default on your loan.
Even if you’re consolidating debt into one lower monthly payment, you will still want to assess the impact on your budget. Budgeting can also make you less dependent on credit and help you stay current on all of your bills.
2. Make on-time payments
Although your credit report won’t show a late payment that’s less than 29 days overdue, your credit card issuer may contact you. If you think you’ll be late, contact your bank, credit bureau, or credit card company to let them know.
If you continue to make on-time payments, lenders are less likely to view this as an on-going problem when issuing credit in the future. Either way, your credit score will take a hit. Plus, when you take out a personal loan, make sure you don’t borrow more than you can easily pay back, so you don’t fall behind on your payments.
3. Consolidate debt
You may consolidate your debts by applying for a personal loan for a lower interest rate and more favorable terms or to simplify your monthly payments. To get the best rates and terms on your consolidation loan, you may need a good credit score. But if your credit is poor or you have no established credit, there are lenders willing to work with you.
That said, taking out a loan to consolidate your debt may not be the best option if you don’t have a steady income and can’t currently make your payments. Consolidation loans only restructure your debt, not pay it off.
Visit Credible to find the best loan rates and decide if a debt consolidation loan makes sense for you.
4. Refinance high rates
When you refinance high-interest rate debt, you take out a new loan for a lower interest rate and better terms. For instance, the Federal Reserve reports that the current average credit card interest rate is 14.58%. But the average interest rate for a two-year personal loan is 9.34%.
And although interest rates on personal loans remain at historic lows, when you refinance your loan, you will likely be charged fees. How much you’ll pay in fees depends on the lender, the amount and length of the new loan, and even where you live. And remember, if you’re paying off your old loan before the end of the term, you may also be charged a prepayment penalty.
Make sure you understand all the fees your lender charges before refinancing, or you could end up paying more over the term of your loan. And, before you refinance, visit Credible to use their personal loan calculator, then find the best personal loan rates and compare lenders all in one place.
5. Set up autopay
If you’re uncertain you can remember to make payments on your personal loan each month, you may want to set-up autopay—if your lender offers that convenience. By linking your personal loan to either your checking or savings account, your payment is automatically paid on time each month. You’re never late with a payment, and you’re building good habits while also building good credit.
7. Pay a little more
If you’re financially able, you may want to pay a little extra on your personal loan each month or at certain times of the year. Even a few extra payments go a long way to becoming debt-free by paying down your debt faster.
Shop Credible for the best personal loan rates and to compare lenders before you decide on a personal loan.