No matter how organized you are with your finances, life will always bring you some surprises that would shake things up a little. It may be a temporary cash flow problem, a major unexpected expense, or even an incident that cost you your job—whatever it is, if it affects your loan payments, then it affects your finances in general.
If you are not able to make payment for one or more of your current loans, you need to take action right away. Do not let things go by just like that. Taking immediate action is necessary to control the damage. Do not wait for things to get out of hand before you do something about it.
Below, you will find some strategies on how to cope better with a problem like this.
What Happens if You Do Not Pay
It definitely helps to imagine the worst-case scenario. This is not to instill paranoia or fear in your mind, but it gives you a realistic picture of the consequences of late payments. This would prompt you to take immediate action.
Here are the common consequences of payment default:
- Interest rates will accumulate
- You will be charged with penalties and fees
- Your credit score will take a plunge
- You can get stuck in the vicious debt cycle
These are the worst things that can happen to you. You do not have to worry about going to prison since debtor’s prison was outlawed in the United States many decades ago.
But of course, this does not mean that you can take this lightly.
Once you realize that you are not able to make a payment for the next due, take note of some options that you still have and these include:
- Make late payment – As they say, it is better late than never. While you need to pay your loan on time to avoid hurting your credit score, you have to remember that the damage is larger if you miss it completely. If possible, make the payment within 30 days of the due date. More often than not, the lender will not bother to report the late payment to the credit bureau if this only happens once.
- Consider consolidation or refinancing – It is possible that you’ll be better off with another type of loan. This is especially true for loans that are difficult to handle and manage such as credit cards and payday loans. Debt consolidation can result in lower costs and lower monthly payment. Not only that, this technique gives you more time to pay back the loan.
- Talk to your lender – If you feel that you’re going to have some trouble making a payment for your loan this month, why don’t you talk with your lender? Your lender might actually have some ways to help you—changing your loan payment due date or waiving late penalties for this month’s payment. You and the lender can even work on a debt settlement.
- Prioritize loan payments – People who have several debts on their back would need to determine which loans to prioritize. Of course, you need to pay first your home and car loans, as you don’t want to lose any of the collateral you used for these. For a while, you can skip on the personal loans and credit cards, as these are unsecured. Just prepare yourself for the late penalties that will be charged on you, and the negative effect this will have your credit rating.
- Get professional help – If you don’t know what to do anymore, you can get professional help. Credit counseling will not only help you get a clearer view of your situation, but will also present to you some possible solutions that you probably have not thought about. Just make sure that you work with a reputable credit counselor, and not someone who just wants you to buy his/her financial product. You can go to the National Foundation for Credit Counseling (NFCC) to search for someone you can work with.
A missed loan payment may ruin your financial plan. But do not let one incident completely derail you. Take immediate action, and next time, build an emergency fund for unexpected expenses so this does not happen again.