Consumer debt has skyrocketed in the United States in the last decade. Right now, people between the ages of 45-54 carry an average debt volume of over $134,000.
Much of that debt comes in the way of installment loans.
Installment loans are a broad term used to cover a wide variety of loan products. These products include home mortgages, car payments, personal loans and more.
At their base, installment loans are simply loans in which consumers borrow a lump sum of money and pay back their debt in “installments” (small monthly payments which account for a loan’s principal plus interest and fees).
In this article, we will dig deeper into what installment loans are and strategies you can use to manage your installment debt.
What Are Installment Loans?
As touched on in the intro, installment loans can encompass a wide variety of loan products. As a general rule, if the loan you took out is one that you’ll be making at least two payments on over the course of anywhere from a couple of months to 30 years, your loan is an installment loan.
Installment loans, as with most loan products, give consumers the ability to borrow lump sums of money for purchases. They then require scheduled repayments of that borrowed money plus applicable interest and fees.
What Interest and Fees Do Installment Loans Come With?
There is no set interest rate or fee schedule that accompanies all installment loans online. For that reason, it’s important that you do your diligence in understanding what terms surround the installment loan product you’re thinking of taking on. A loan’s terms can have a profound impact on the installment debt you’ll need to manage over the life of your loan.
If you have outstanding credit, the interest rate you’ll get on your installment loan will be better than if you have poor credit. Depending on the type of product you’re purchasing and the risk that the product presents to lenders, your interest rate will also vary.
For example, home loans carry more risk with them to lenders than car loans do given the cost of a home. For that reason, lending institutions will usually have higher interest rates on installment loans for mortgages than they will with loans for automobiles.
Fees are also non-standard with installment loans. That reality gives you flexibility in both finding a lender that has fee-free products and/or negotiating down fees.
How to Manage Installment Loan Debt
Now that you have a better idea of what an installment loan is and what kind of fees you may be liable to pay when taking one out, let’s talk about installment debt.
Installment debt is what you’ll have the moment you request an installment loan. You will remain in debt to your installment loan until you’ve completed its payment schedule.
Unfortunately, if you miss payments and fall behind on your loan’s schedule, managing your installment debt can get a lot more complicated.
With missed payments can come things like fees added to your loan balance which will then compound when interest is applied to them. This can balloon your minimum monthly payments or extend your payment schedule so you’re in debt for longer periods of time.
If you have found yourself in a situation where your installment loan debt has become unmanageable, there are strategies you can utilize to help you manage your debt that will prevent or minimize damage to your credit.
Below, we have listed out a variety of ways you may be able to manage your installment debt.
Pay Off Your Debt in Full
This suggestion won’t be helpful to most people as it assumes you have the financial means to pay off your debt in full. It is worth mentioning to those who are capable of this, however.
If your installment debt is getting out of hand because you’re having difficulty remembering to make payments, it’s better to get the loan off of your books now rather than let it balloon any further.
Most installment loans will allow you to pay them off ahead of its payment schedule without incurring early exit fees.
Talk to Your Lender
If paying off your loan in full to keep your installment debt from getting further out of hand is not an option, the first thing you should do is discuss your situation with your lender.
Through constructive dialogue, many lenders can help you spread out your payments in a way that will allow you to meet your minimums each month. Your lender may even be willing to negotiate a lower interest rate. This can bring down your debt burden substantially.
Consolidate Your Installment Loans
If you have multiple installment loans you’re managing, you’re likely paying different interest, fees, and need to manage different due dates for each one. To focus your efforts and save yourself money, you should consolidate your debt as much as possible.
Debt consolidation is the process of having a single lender buy out all the debt you have from other lenders. Consequently, you’re only paying a single lender (them) as opposed to many.
It benefits a lender to buy off your debt because they’ll get to collect the interest you had previously been paying to competing lenders. Consolidation also benefits you. It allows you to negotiate a single, low-interest rate with one lender which will save you from having to pay multiple entities higher rates.
Talk to a Credit Counselor
There are financial professionals out there who can help you come up with a plan to manage your debt. While it can be scary to be open about your installment loan debt with a third party, for many who are having trouble figuring out how to manage their finances, it can be extremely helpful.
Many organizations offer credit counseling advice free of charge to people struggling with debt. Most will only charge if you end up subscribing to one of their debt management plans. These plans will actively navigate you out of debt over an extended period of time.
Be wary of pure for-profit credit counselors that advertise their ability to get you out of debt fast. Getting out of debt and rehabilitating your credit takes time. Anybody that says they can do it overnight is likely not worth your time.
Change Your Spending Habits
There is no better way to manage your installment debt than to make sure that you have the funds you need to make timely payments on it. The best way you can work towards that end immediately is by changing your spending habits.
If you’re finding yourself drowning in installment debt while enjoying a high-end vehicle, a home that exceeds your needs or a number of other luxuries, it’s advisable to scale back and prioritize paying down your debt.
While scaling back can present challenges, concessions don’t have to be wholesale. They can also be empowering when you realize how many things you can actually live without.
To get started scaling back your lifestyle and funneling more money towards the management of your installment debt, first, figure out how much extra money you need to meet the minimum payments on all of your outstanding loans.
Once you have a number written down, look at the non-necessary expenses you pay for. Think about what you could reduce or cut out to come up with the money you need to meet your debt obligations.
You may find that doing things as simple as downgrading your cable package or asking for $50.00 a month off of your rent could be enough to start moving you in a positive financial direction.
Prioritize Your Debt Payments
If you aren’t able to consolidate all of your installment loans under a single lender, you’ll want to prioritize which loans you put the most effort towards paying down. You can do this by looking at their interest rates.
For example, say you have two outstanding loans. One that charges a 10% interest rate and another that has a 25% interest rate. It would be beneficial to get rid of the 25% interest rate loan as quickly as possible.
This will reduce the total amount you pay above principal on your debt portfolio.
That’s not to say that you should stop paying down your 10% interest rate loan to funnel your money towards the 25% loan. You will want to continue making minimum payments on your low-interest rate loans. This will help you avoid unnecessary fees and damage to your credit.
Explore Debt Relief Programs
There are programs designed to help people absolve or help manage their debt. As an example, if your primary installment loan is a student loan you’re paying down, programs like the Public Service Loan Forgiveness program or Teacher Loan Forgiveness program could help you manage your debt.
To get started finding relevant programs you may qualify for, go to your favorite search engine. Once you’ve arrived, run a search that includes your type of loan, the area you live in, and the word “forgiveness”.
Be wary of for-profit agencies that will likely populate the first few results.
Ask For Help From Family and Friends
Asking for financial help is extremely difficult. If you’re having difficulty keeping up with your debt, however, it may be a viable option to get you back on your feet.
Present your situation and plan honestly to the people in your life you trust most. This may lead to monetary assistance or at least advice on how you can move forward financially.
While not everybody has a support system that would enable them to exercise this option, if you do, asking for help is worth serious consideration.
This option is a last resort given the implications. Bankruptcy will damage your credit and eligibility for services in the future. It is certainly something to consider though.
If your installment debt has gotten to the point where you don’t see a way out and none of the other options on this list have worked for you, you can get debt collectors to stop harassing you and start fresh (to an extent) by filing for bankruptcy.
To understand further the repercussions of bankruptcy and what your obligations are legally to your debt during and post-bankruptcy declaration, talk to a financial advisor or credit counselor.
You can likely find either for free through your bank or credit union.
Wrapping Up How to Manage Installment Loans and Installment Debt
There are a variety of reasons as to why you may have taken out an installment loan. No matter the reason, if you have found yourself in a position where you’re having difficulty paying back your debt, it’s important that you’re proactive.
To do exactly that, we recommend going through our installment debt management solutions above. Any one of the tips we’ve listed or a combination of multiple could give you the boost you need to start making headway towards a brighter financial future.
Are you looking for the best financial education or financial products available to you online? If so, our team at Bonsai Fiance is here to help.
At Bonsai Finance we work with people like you by helping them find loan providers, credit card issuers, and more. These parties offer the money you need today to help build a bridge to a better tomorrow.