Essential tips for managing your personal loan

If you're unsure how much your personal loan is really costing you each month, a few simple steps could help you get clarity and stay in control. A loan can be fairly simple to manage. You just need a plan.

We've got five practical tips to help you track payments, manage your budget, and make steady progress toward your financial goals.

Here are your five steps:

• Create a realistic budget that includes your loan payment

• Set up automatic payments

• Consider making extra payments

• Compare debt payoff strategies

• Monitor your credit for opportunities to refinance

Here's what this looks like in real life. We'll take you through it step by step, with examples.

1. Create a realistic budget that includes your loan payment

Start with a simple budget that tracks expenses. Even if you've never budgeted before, you can learn to budget with the best of them. In addition to other regular expenses, like rent or your car payment, add your loan payment as a fixed monthly expense.

Here's how to budget:

• Record your total monthly income after taxes. This is how much you have to work with each month.

• List the expenses in each category, like groceries, rent, personal loans, and digital subscriptions. Add up your total expenses. This is how much you're spending each month.

• Compare to expectations. Are you earning what you thought? Are you spending what you assumed? If something seems surprising, decide whether you're okay with it or you want to make a specific change. You might consider cutting back on restaurant meals or subscriptions.

• List a spending goal next to each category. Keep it reasonable. A budget isn't about pain and suffering—it's about putting your money to work in a way that fits your goals. Work on one category at a time. Spending cuts take effort, so don't overreach and burn out. You can reevaluate next month.

Go easy on yourself. Estimate if you need to, and be a bit conservative. It's better to assume you're spending more than less. You're not aiming for numerical perfection, but rather, a general idea of your spending, whether it's sustainable, and where some tweaks would move the needle.

When money is tight, treat your loan payment as a non-negotiable fixed cost, right alongside your rent and utilities. Trim your flexible categories first, like dining out or subscriptions, before you touch anything that keeps a roof over your head and your credit intact.

Sample budget

Here's an example of how a budget and review might look:

• Record income. Your job pays you $4,000 per month, which comes to about $3,192 after taxes.

• List expenses. Your bank account statement shows how much you spent last month. You group expenses by category and round up. Your personal loan payment is $250 per month. Your total expenses were $3,000 last month.

• Compare to expectations. It looks like the personal loan payment is cutting into your spending money. You want to pay off the loan early, but the budget is tight.

• Rework your spending goals. You decide to cut back on DoorDash and pizza deliveries. The money you save ($130) will go toward paying down your loan early.

• Return to your budget next month to see how you did. Did you keep spending below your targets? Did you have a bit of extra cash to put toward your loan?

Effective strategies come in many flavors. You might carry cash instead of cards, cancel a subscription, or spend time around friends who are also looking to cut back on spending.

2. Set up automatic payments to avoid late fees and protect your credit

Most lenders let you set up automatic payments on your loan. An automatic payment is a payment you preauthorize to a vendor or provider, usually each month. You can set up an automatic payment directly through a service provider or through your bank or credit card. Your payments will go through on the dates you've chosen, so you don't have to make manual payments when your bills are due.

Set up automatic payments to avoid late fees. You were going to pay, but then the toaster exploded, and you forgot. Life happens. Keep things running smoothly by making payment automatic.

By avoiding late payments, you could also protect your credit score. A single late payment (over 30 days past due) could severely ding your score. Automatic payments could help keep your score healthy, assuming you keep enough cash in your linked bank account.

Even better, lenders sometimes offer rate discounts for setting up autopay, typically 0.25%. Here are the total interest costs for a hypothetical $10,000, five-year loan before and after a discount:

This could be one of the easiest rate cuts you'll ever get.

Achieve is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.

3. Consider making extra payments to reduce total interest

Extra payments can make your loan cost less overall. By paying down the principal faster, you reduce the interest you're charged going forward.

Be sure to specify you want the extra payments to go toward the loan principal, which is the original money you borrowed. If you don't specify, your lender may put the money toward interest instead. Extra money put toward the principal reduces debt the fastest.

Say you have a five-year, $10,000 personal loan with a 15% APR. Your monthly payments are $238. Here's the interest you could pay when you make extra monthly payments on top of your regular payment:

Some lenders charge a prepayment penalty that makes early payoffs undesirable. The penalty amount could be a percentage of your remaining balance, a fixed amount, or an interest-based fee, such as a year's worth of interest. Always check your loan terms. When in doubt, call your lender and ask.

4. Compare debt payoff strategies

Debt payoff strategies help you juggle multiple debts. Say you have a personal loan plus two credit cards with balances. Which do you pay down first? Two methods could help you decide.

The debt snowball method has you focus on debts from smallest to largest balance. By putting extra cash toward your smallest debt, you could quickly wipe out the debt. Then, you put that amount toward the next-smallest debt. The idea is to build momentum and motivation.

In the debt avalanche method, you tackle your debts from highest to lowest interest rate. It's mathematically ideal. It assumes you want to save money instead of focusing on the motivational boost that comes from clearing small debts quickly.

5. Monitor your credit and look for opportunities to refinance

You could be eligible for lower rates if your credit score goes up. Monitor your score with free credit-monitoring tools or the three major credit bureaus, Equifax, Experian, and TransUnion. You can check your score and get alerts when your score changes.

When refinancing, consider fees as well as terms. Fees could cut into your savings from a refinance. Your term length is also important. With a longer term, your monthly payments might shrink. You could also pay more interest over the life of your loan. Decide if it's worth the tradeoff.

If you think a refinance could be the right call, prequalify with a few lenders that use a soft credit inquiry. Prequalifying with a soft inquiry won't hurt your score, and it gives you an idea of what kind of rate you might get if you refinance so you can figure out if the numbers make sense.

Achieve is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.

When you need additional support

If you're dealing with multiple debts and need help making a plan, consider a credit counseling agency. The National Foundation for Credit Counseling is a nonprofit network that can connect you with certified counselors who could help create a debt management plan (DMP) if you qualify. The Financial Counseling Association of America offers similar services.

When you just need some advice, your bank or credit union may offer free financial assistance. If you have a retirement plan through your employer, the provider's website likely has educational resources. These sometimes offer free resources or connect you to a financial advisor. The Achieve website could also be a good resource for information on debt solutions.

Want to refinance or apply for a new personal loan? Find out if you qualify through Achieve Personal Loans.