16.11.2022
I CAN'T PAY MY LOAN PAYMENTS - WHAT SHOULD I DO
Are you having a hard time paying your monthly loan payments? This can have serious consequences if you don't act on time. Even if you've made a financial mistake, there's a chance you can fix it before it hurts your credit history and your budget for years to come.
First of all - do not despair and do not run away from the problem. There are various ways to improve your situation. Oftentimes, lenders are willing to negotiate a customized payment plan that fits your needs. Your lender may agree to reduce or even pause your payments depending on your situation.
Delay, Consolidation or Refinance?
If you have a one-time difficulty and are facing a late payment, try to make an installment within 30 days of the due date. In many cases, these late payments do not even enter the Central Credit Register, so your credit score will not suffer. When you realize that you won't be able to keep up with payments on time in the future, it's time to take action before you're officially late on your payments.
Consolidating or pooling loans provides an easy and convenient way to reduce your monthly expenses. If you have several loans, it may be a good idea to consolidate them into one. So you pay only one monthly installment, at a more favorable price, on one date, with one interest and principal. Having fewer loans serviced on time increases your credit score and subsequently gives you access to higher amounts and approval.
Refinancing can only be used if you already have a loan from a bank or non-bank institution. In practice, this is the replacement of one credit with another, and the purpose of the new transaction is to improve conditions for the client. This could mean a smaller monthly payment, a lower interest rate, a shorter repayment period and other details that would make it easier to pay off the debt.
Contact your lender
Credit companies are often understanding that financial situations change and can help you avoid a bad credit history. Before making contact, do the following:
- Clarify your problem. Are you experiencing a one-off hardship – such as an emergency car repair that has drained your bank account? Or will you be running out of cash month after month because your income has gone down? In other words - what is the reason for the inability to pay or the delay. Providing a short and clear explanation to your lender can be essential;
- Create a plan. Try to figure out what can help you. Will missing a payment or two get you back on track? When could you resume making normal payments? Or will lower monthly payments for a while help stabilize you financially? It is important to have a plan of action to convince your lender that you will deal with the problem.
If you know exactly what you need, then you are ready to contact your lender - the sooner the better. Don't wait until you're behind on your payments to make contact, as the lender may not be as willing to help you.
Call or go to the location and explain your situation in detail. You can suggest your own plan or ask what payment relief options may be available to you and if you qualify.
Most lenders have a practice of offering assistance to a certain degree depending on the situation. For example, there are skip payment programs that allow you to miss a few payments without penalty, or adjusted payment plans with reduced interest rates.
You should require the terms of any agreement you make to be in writing. This documentation will help you not forget any important detail and also serves as written evidence in case there is any confusion with your lender in the future.
Prioritize your debts
Before tackling the credit debts, check if any of your other debts are not more serious - these are called "priority debts". Priority debts include: rent and mortgage, gas and electricity, council tax and court fines. If you don't deal with your priority debts, you could lose your home or have your energy supply cut off, for example.
The first step is to make a budget. This will help you understand how much you have left each month after paying your main bills and priority debts. The amount you have left over is your “disposable income”. After that, it is important to stick to the set budget and not only exceed it, but even try to save.
Try to be as accurate as possible. Before you budget, find your most recent bank statements, pay stubs, and debit and credit card statements. A budget plan will help you estimate how much disposable income you can use to pay off other non-priority debts.
Optimize living expenses
Add up your income and expenses. Look for ways to reduce costs and increase revenue. The cost of living is the price of the goods and services you consume to achieve a sufficient degree of satisfaction and reach a certain standard of living.
The things you definitely need to keep paying are rent/mortgage, utilities and transportation. Learn how to optimize food and clothing spending. These are feathers that you can probably save some extra money on by making some compromises.
All other expenses are optional, which means you can learn to live without them, at least until you "get on your feet." This includes all "pleasures" such as cable TV, movies, restaurants, phone bills, buying branded goods, expensive hobbies, etc.
Credit card payments
You should try to make at least the minimum payment on your credit card. If you pay less than the minimum payment, the loan company may add fees. This will affect the amount of your debt and your credit score.
If you can afford to make regular payments, set up a direct debit to your credit card account. This means you will automatically make the same installments every month. Keep paying as much as you can.
Keep a copy of your budget. If you need to ask the loan company for lower installments, you can present them with your budget plan. In this way, you will prove that you cannot afford more than what you are offering to pay.
Explain the situation to your lender and ask for a freeze on interest and other charges. You can negotiate a pause in payments on your card – meaning you won't need to pay anything until your situation improves.
If you don't think your financial situation is likely to improve, you might consider transferring your debt to another card that charges less interest - this is called a 'balance transfer'. Another option is to take out a lower interest loan from your credit card.
Compare the cards or loans you can get from different companies. Note whether there will be a fee to move your balance to another card, what interest and fees you'll pay on the new card or loan, and how long each interest-free period is.
Use a loan or new credit card just to pay off the debt you already have. Don't spend more than your current credit card. Avoid taking out a loan that is tied to your home, such as a mortgage. You risk losing your home if you can't get it back.
It is very likely that you will not get a new bank loan if you have a bad credit rating. This can happen if you have already applied for many loans or regularly missed monthly payments. In this case, you may need to resort to the services of a company for quick loans.
If you have doubts about the accuracy of your credit score, you can check whether it was calculated correctly. Verification won't make it worse, but you may be able to correct an error to improve your grade.
