Taking out a personal loan can be an effective way to consolidate debt or cover additional expenses. Many people use personal loans to finance weddings or vacations, fund home renovations, or make large purchases like a new vehicle.

After securing a personal loan, you’ll need to make monthly payments that cover the loan amount, the lender’s interest charges, and any applicable fees. Creating a plan to manage your loan can help you repay your balance more quickly, saving you money in the long run.

Incorporating a loan payment into your monthly expenses requires adjusting your budget to accommodate it. To make room for the loan payment, consider cutting back on discretionary spending such as:

  • Dining out.
  • Subscription services.
  • Entertainment subscriptions.
  • Gym memberships.
  • Travel expenses.
  • Alcohol purchases.

Reevaluate your budget to ensure it accounts for the new loan payments. If taking on the loan increases your debt-to-income ratio (DTI) beyond 36 percent, it might be wise to reconsider whether the loan is a suitable option for you.

When arranging payments for your personal loan, you’re typically offered the choice to opt for automatic payments. With autopay, your payments are automatically deducted from a designated bank account or credit card on a set date each month.

Enabling autopay can be advantageous because it relieves you of the responsibility of remembering to make monthly payments. Additionally, many lenders provide an autopay discount when you sign up, potentially reducing the amount of interest you pay over the loan’s duration.

Allocating additional funds toward your personal loan accelerates your debt repayment process. Moreover, clearing the loan ahead of schedule translates to lower overall interest payments, reducing the total cost of the loan—provided there are no prepayment penalties.

Increasing your monthly payments, even by a modest amount, is a reliable method to expedite the reduction of your balance. This strategy not only diminishes the interest accrued but also yields notable progress regardless of the additional sum.

Certain lenders offer the option of bi-weekly payments instead of the typical monthly schedule. With this arrangement, your payment is split in half and processed every two weeks. While the impact may seem minor, making an additional payment annually can significantly curtail your total interest accumulation.

A lump sum payment is a sizable one-time payment, often substantially larger than your regular monthly installment. If you come into unexpected funds, such as a significant raise or a substantial tax refund, opting for a lump sum payment can offer both financial and psychological advantages.

While your monthly payment remains unchanged, making a lump sum payment can diminish the interest accrued over the loan’s duration.

Consolidating multiple high-interest loans into a single loan with lower interest rates can expedite debt repayment. According to Dvorkin, it’s advisable to consider debt consolidation, especially if you have accumulated significant credit card debt exceeding $10,000 and struggle with high interest rates hindering principal payments.

However, consolidation isn’t universally beneficial. While it simplifies monthly payments, it may not suit all circumstances. It’s essential to evaluate the potential impact on your monthly payments and overall savings before proceeding with consolidation, ensuring it aligns with your financial goals.

Consolidating debt with a loan carrying a higher interest rate compared to your existing accounts may not yield any savings, rendering consolidation impractical. To secure a competitive rate, it’s advisable to prequalify with multiple lenders.

Furthermore, be wary of potential fees associated with the new loan, such as origination and prepayment fees, as they can accumulate rapidly and diminish the loan’s overall benefits. Prior to signing any loan agreement, carefully review the terms and conditions to avoid unexpected fees.

Refinancing a personal loan entails collaborating with a new lender to secure a loan for the remaining amount, often with improved terms like lower rates or adjusted payment schedules. Similar to consolidation, refinancing can trim down your interest payments over the loan’s lifespan.

However, if the associated fees of refinancing are steep, they might offset the potential benefits. Moreover, opting for a longer repayment term with the new loan could mean shelling out more in interest over the long haul.

To gauge the viability of refinancing, compare the total expenditure on the remaining payments with your current loan against that of the new loan. This calculation will help you ascertain whether the refinancing costs align with your financial goals.

In the past couple of years, the Federal Reserve has hiked rates several times in an effort to temper the overheated economy. Presently, as of May 2024, the average personal loan rate stands at a record high of 12.21 percent.

Given the prevailing high-rate environment, it’s generally not the most opportune time for many borrowers to consider refinancing. Nonetheless, if the interest rates on your current loans are notably high and you qualify for a lower rate through prequalification, it could potentially be advantageous.

If traditional methods of managing your loan aren’t viable or desirable, there are alternative avenues to explore for saving money on your personal loan.

Initiate a dialogue with your lender to discuss the possibility of adjusting your terms or securing a lower interest rate. Demonstrating a history of on-time payments and maintaining a favorable credit record can bolster your negotiating position, as noted by Dvorkin.

Alternatively, consider utilizing a balance transfer credit card, which permits the transfer of debt with nominal fees. Many issuers extend interest-free promotional periods, providing an opportunity to mitigate interest costs.

Effectively managing a personal loan involves exploring various avenues to save money over time. Every little bit helps, so even modest additional payments toward your monthly installments can yield benefits. Stay open to all possibilities throughout the loan term.

Consolidation or refinancing might not be feasible presently for a better rate, but circumstances can change. As your financial situation and creditworthiness improve, so may your options for repayment. Stay vigilant and consider all possibilities until you clear the balance to maximize your savings opportunities.