We all know the drill: it’s the first of the month and time to get the finances in order for those monthly loan payments. Whether it’s a mortgage, student loan payment, auto loan or another bill, the due dates feel as though they quickly creep up on us.

Taking time out of the week to juggle those loan payments can feel hectic. Despite that, we do whatever it takes to avoid those costly (not to mention annoying) late fees.

If you’re like most people, you’re probably paying your loans when they’re due. And like most people, you may not realize there’s a better way to manage those payments.

By better, we mean an easier, more organized way to tackle them. It’s an approach that stop the hectic monthly scramble and one that even could save money over the the life of your loans*.

The secret: setting aside money for your loan payments every time you get paid.

Here’s why this is a better way to manage your debt:

Better budgeting

Taking loan payments out of each paycheck is a great budgeting tactic. When you automatically account for those dollars, you’re less likely to spend them!

It’s similar to health insurance, 401k contributions and other deductions that come out of your paycheck before they hit your bank account. You don’t even notice they’re gone when you don’t see them hit your bank account.

It’s a familiar habit we can apply to debt management. We know that the best way to save for retirement is to make automatic contributions from our paycheck.

Same goes for paying down debt: the best way to stay on top of it is to put money towards those fixed costs automatically.

When you automatically take your loan payments out of each paycheck, you’re essentially “tricking” yourself into paying more without thinking about it.

The plus side: you’re making more progress on paying off your debt without feeling burdened by it. And it sure feels good to make progress.

You’ll see your debt balances dwindle faster, and soon you can find new ways to save or spend that money.

The more you see yourself chip away at debt, the more you’ll feel a great sense of accomplishment for freeing up more of your cash flow for other (more fun) things.

It’s the equivalent of finding spare change in the couch—but hopefully a lot more of it. 🙂

Money saved

Taking money out of each paycheck potentially can help you put more money towards your loans, helping you pay more principal and less interest over time*.

Here’s the math: many people get paid every other week. If you set aside small amounts every paycheck, that translates to 26 micro-payments per year. With 52 weeks in a year, that means you’d be making 13 instead of 12 total monthly payments. This simple change just got you in the habit of making a full additional payment on your loan in a given year.

As Daily Worth puts it, “because paying every other week means there will be two months in the year that have three half payments go out instead of two and that equals one whole extra payment per year.”

With that approach, you’re saving money on interest charged on the balance of your loan.

Why? Because you chip away at more loan principal. The principal of a loan is the amount you borrowed and the interest is essentially the cost of borrowing this principal amount. The amount you pay on interest is calculated based on the amount left in your principal balance. So the more money you put towards paying off this principal, the less interest you will be charged over time.

Less paid towards fees

Getting more organized with your loan payments also helps you to save money on costly late fees, overdraft fees and, as mentioned above, interest.

You wouldn’t believe how much money people spend on these fees each year.

According to Forbes, banks collect $11.6 billion per year in overdraft fees. The average fee falls between $25-35 per transaction, and it’s not unusual to be charged multiple overdraft fees in a given day.

Late fees are just as bad, if not worse. U.S. News finds that late fees can be anywhere from 10-15% of a total monthly bill.

According to their findings, “if you pay, say, $2,500 a month in mortgage or rent, a car loan, electric and other utilities, you could easily be spending $2,750 with late fees but budgeting to spend $2,500.”

That’s money that could be better spent on groceries, vacations, or savings for the future. It’s cash out of your pocket that a more disciplined system for budgeting could prevent.

In summary: Debt management as a discipline

Effective debt management is more of a skill than people realize. It’s difficult to do well without a structured and organized approach.

We built EarnUp to help people feel more organized and accomplished when managing their loans.

Want help automating the way you manage your loan payments? Give us a shout. We’d love to help you conquer your debt.

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*
Savings calculated are net of fees and based off the expectation of additional payments made towards the loan principal over the full the life of the loan. Savings may vary based on your unique EarnUp Program.