5 Ways to Make Sure Your Loan Payments Are On Time

The average American now has over $38,000 in personal debt (excluding mortgages), according to CNBC. With such a wide array of credit options available, including student loans, credit cards, car loans, and everything in between, it's no surprise that personal debt continues to rise each year. If you have increasing loan balances across an expanding number of financing products, staying on top of your repayments is more crucial than ever.

That being said, not everyone can make it through life without relying on the occasional loan. If you do decide to utilize loans to finance your needs (or wants), the best practice is to avoid any unnecessary costs or fees. Have you ever missed a single loan repayment, only to be stung with a hefty penalty or interest charge the following month? If so, you'll know exactly what we mean. 

While life can get in the way every now and then, setting up good habits to ensure your loan payments are made on time may just save you a large sum of money in the long run. In addition to eliminating unnecessary spending, you'll be building financial discipline and maximizing your credit score for the future.

In this article, we'll go over the five best ways to make sure your loan payments are paid on time—every time. 

1. Know what you owe and when 

"If you can't measure it, you can't improve it." 

Peter Drucker, PhD — Renowned Business Author 

Making your loan payments are on time will prove to be a difficult task if you're not aware of what you owe or when you owe it. You should be clear on what loan products you hold, their respective balances, and their monthly minimum payments. After identifying this information, you can then plan a schedule around when each payment is due.

Consider putting recurring reminders in your phone's calendar app on the date on which each loan payment is due. If you owe different sums to multiple lenders, you may also want to make a note of the amount due for each payment. Having a clearly visualized schedule of all your monthly payments will help you stay on track (and leave a virtual record of when you made previous payments) while receiving regular reminders will ensure you never simply forget a due date. 

You can also sign up for SMS alerts, push notifications, or email reminders from each of your credit providers. Credit card companies must notify you at least twenty-one days ahead of your payment being due. Other lenders will also send you notices, so make sure to check your email or mail just in case you've missed a reminder. 

2. Set up automatic transfers and direct debits 

Now that you have a solid understanding of when your payments are due, you can set up automatic payments via a direct debit agreement. Direct debits are typically used for loans with fixed or regular monthly payments, such as personal loans or mortgage payments. Not only does direct debit mean no more missed payments, but setting it up is easy. You’ll just need to fill out a form authorizing your bank or loan provider to withdraw a predetermined amount from your selected bank account each repayment period. You can cancel or change your direct debit agreement at any time, and your lender must notify you of any changes made to your direct debit.

The important thing with direct debit is that you'll need to make sure you maintain enough money in your account to cover any withdrawn payments. If you don't, you might be charged an overdraft or payment bounce fee. You may want to consider an automatic transfer between your bank accounts to cover your monthly loan expenses. Generally, you should only set up direct debit payments if you're sure you can meet them with your regular account balance. 

3. Align payment schedules to your pay cycle and budget 

You need to have money in your account to make your loan payments—let alone making sure they're on time. Think about what your regular cash flow looks like: Do you get paid on the first day of each month? If so, your account may run low by the end of this period, so consider making your loan payments a priority. 

Many lenders will allow you to line up your payments with the frequency of your pay cycle. If you get paid biweekly, for example, you may want to schedule your loan payments to fall shortly after either of these two days (or after both).  Assessing your loan requirements in the context of your overall budget is essential when maximizing your ability to repay debt. You need to ensure there's enough money to go around. Prioritizing loan payments is a great way to make sure they're paid off in full and on time. 

4. Consider consolidating your debts 

You may have multiple sources of debt: a car loan, student loans, three credit cards, a mortgage... the list could go on. Repaying multiple lines of credit at once can become overwhelming (even with these tips!). If this is the case, you should do some research on options for consolidating your debts into one or two larger loans. Imagine only having to make one simple payment a month—that would be far easier to keep track of, wouldn’t it? Plus, simplified payments means no more excuses for not paying off debt on time. 

One popular solution for consolidating debt payments is to refinance multiple consumer loans or credit cards into one easy-to-manage unsecured personal loan. You might end up paying less in interest, and your payments will be far easier to stay on top of. 

5. Make payments ahead of schedule 

Depending on your loan product, the due date is the latest day to make a payment before fees or other additional charges will be applied. Remember: You don't always have to wait until the last day to make your loan payments. However, it’s important that you check first whether your lender allows early repayment. If they charge a prepayment penalty, it might not be worth it. If they don't (and you have the cash flow to cover a little extra), consider making extra payments. 

Remember, extra payments made against the principal may not be a substitute for your regular monthly payment. You’ll still be responsible for making payments based on the terms of your loan. Always check with your lender to find out the details. 

You might even be able to get ahead of schedule by repaying extra ahead of your next billing period. If your lender allows this, it's a surefire way to pay off your debt faster, pay less in interest, and avoid the possibility of making a late loan payment.  

The importance of making your loan payments on time 

Making a habit of paying debt late is not a smart financial decision. Not only will you incur unnecessary fees, interest, and charges, but your irresponsible debt management will be recorded on your credit report for potential future lenders to see for up to seven years.

Seven years is a long time, and your need for credit over that timeframe will likely only increase. Damage to your credit report now will be harder to recover from down the road. Get in the habit of meeting your commitments today to ensure access to additional credit—at better rates—in the future.