How To Manage Your Loans
Having different types of loans may feel daunting at times, but there are several steps you can take to manage your loans effectively. By creating a loan management system you’ll not only pay down your private loans as quickly as possible, you’ll also safeguard your credit score, both of which are imperative to your future financial health. Whether you have student loans, a home equity loan, an auto loan, or another type of bank loan, we’ll show you some simple tricks to maximize your loan planning. Ready to get started?
Understand your loan
The first step to taking charge of your loan debt is to understand exactly what type of loans you have. Loans generally fall into two categories: secured loans and unsecured loans. With a secured loan, your money lender may use some of your personal property as pre-determined collateral in case of loan default. For example, your mortgage and your auto loan are both examples of secured loans where your home and car serve as the collateral for each one. It’s important to prioritize these payments so that you can ensure you don’t lose your tangible property to a private lender.
Unsecured loans, on the other hand, do not have property attached to them so you are typically not in danger of having anything repossessed. Examples of unsecured loans include student loans, medical bills, and credit card debt. It’s still important to pay these bills, however, so that your credit score isn’t impacted by late or default payments.
Make all minimum payments on time
When it comes to loan management, making at least the minimum payment on each debt is critical. This will not only keep each account in good standing, it will also keep from any late payments from being reported to the credit agencies. Remember that your payment history is the most heavily weighted portion of your FICO score, so any noted delinquencies will negatively affect your future ability to borrow at prime interest rates, or even qualify for a loan at all. It will also affect your ability to negotiate current interest rates. If you’re unsure of when each lender considers a payment late, it’s worth taking a few minutes out of your day to call each one and confirm your due dates. Another bonus is avoiding late fees; if you tend to pay those often, make the commitment to make your payments on time and use the money you used to spend on late fees to pay extra on your loan principal.
Lower your interest rates
Another smart move in debt management is to make sure you’re getting the best interest rate possible. Start off by calling each of your lenders and reminding them of your strong payment history and any improvements in your credit score. You can also research different types of credit cards and bank loans loans to clear debt. Oftentimes, credit card companies offer low rates to transfer your balance from another card, which gives you time to make extra payments while paying less interest, or sometimes even none at all. Shop around to find the best bargain but remember not to apply to too many new credit cards, since each application has a small negative impact on your credit score. Personal and home equity loans are also options to consider if your other debt comes with a high interest rate. Again, do your research to find the best options that you may qualify for.
Use a budgeting tool
Once you have your interest rates and monthly payments settled, it’s time to work on your budget to determine how much extra money you can put towards paying down debt. If you need help, use an online tool like Mint.com to keep track of your spending. It automatically categorizes all of your purchases from your bank accounts so you can easily monitor how much you’ve spent on non-essentials. Once you know where you tend to overspend, you can get a better grasp on how to cut back. Set a debt payoff goal and put that money you saved directly towards paying down your debt faster. You can also set up automatic payments on payday so that your necessary bills are settled before you move on to discretionary spending. Just make sure you still review each billing statement, particularly those for credit cards, to ensure everything is accurate. If not, call the creditor right away to dispute any incorrect charges.
Choose which loan to pay off first
There are a number of approaches you can take when it comes to deciding which loan to pay off first. After you make the minimum monthly payment on each debt, you can focus your extra money on paying down one loan. One option is to pay off the private loan with the highest interest rate first so that you save the most money in the long run. This method is great for people who are motivated by extra money. However, if you need an early success to feel inspired to save and make those extra payments, you can also first pay off the loan with the lowest balance. Once the smallest loan is paid off, you’ll feel a sense of accomplishment that will serve as momentum to move onto the next loan.
Get help with debt management
If you’re wondering, “How do I manage my loans?” don’t worry – you’re not alone. There are plenty of trustworthy professional organizations who can help you explore all of your debt relief options. Whether it’s debt consolidation or debt settlement, there are many ways to manage your loan, even if you have trouble making your minimum payments.