As commonplace as borrowing money is in today’s world, a lot of people may not realize how serious the consequences can be when the process isn’t taken seriously enough. Whether you need a mortgage to buy a house, an auto loan to buy a car, or a small personal loan to help you deal with an emergency expense, applying for a loan can have serious implications on your financial standing.
Therefore, it’s very important to learn how you can manage your payments without falling behind. However, whether it’s due to poor planning or just bad luck, you might find yourself in a situation where you have a due date for a loan payment coming up that you just don’t have the money to pay for. When this happens, it’s in your best interest to try to address the problem as soon as possible. This way, you might be able to limit some of the damage done to your finances and hopefully mitigate some of the financial fallout.
Today, we’re going to walk you through some potential things you might want to do in order to manage your payments, what to do in case you are unable to make your payments, and what you can do in the future to help prevent this from happening again.
How to Manage Loan Payments
Anytime you borrow funds, it’s important to ensure that you have a plan in place to handle your loan payments responsibly. If you’re not able to manage to your loan payments, you could be causing potential damage to your finances in the present and in the long run.
In order to avoid doing that, here are a few tips that you may find useful to your situation.
1. Maintain a Budget
In order to stay organized and to avoid finding yourself in financial trouble, it’s important that you have a good grasp of where your finances stand. Maintaining an effective budget is one of the best ways to do this. It can help you to track all your spending and upcoming payments, understand where your money is going, identify problem areas, and give you clear insights into your financial standing.
If you’re not working with a budget and need a hand getting started, taking a look at this beginner’s guide to budgeting.
2. Prioritize Your Essential Bills and Cut Back Where You Can
This is another important aspect when it comes to managing your loan payments.
If money is tight and you’re worried about missing an upcoming loan payment, it may be time to look at your finances and make some tough decisions.
Start by listing out all your regular bills and your upcoming expenses. Separate essential expenses that you simply can’t afford to miss. This will likely be things like rent, loan payments, utility bills, and more. You may also want to speak to your service providers to see if you can defer payments on any of those bills to give yourself a bit of breathing room.
You can then look at whatever recurring expenses you have left and see if any of those can be put on hold. For example, as nice as it is to have a streaming service or two at your disposal, putting a pause on those accounts to save money for your essential expenses might be a good idea for a few months.
You can also look for ways to cut back on other essential expenses. For example, you can’t stop buying groceries for a month, but you may be able to put a bit more effort into cutting back on how much you spend in that area. Go through weekly flyers to see what’s on sale, gear your meal plan around those items, and avoid getting takeout for the foreseeable future.
What Happens if you Can’t Pay your Loan?
If you start to miss loan payments, at a certain point you’ll default on your loan. In that process, there may be late fees to pay, interest may continue to accrue, there may be other penalties to deal with, and you’ll likely end up affecting your credit. This could ultimately lead you to having a bad credit score. It could end up taking you a number of years to financially recover from this whole ordeal, which can make it harder to borrow and save money in the interim.
That’s not to say that if you do end up in this kind of situation, you should start to panic. There are practices and habits you can start to put in place that, with dedication and patience, may slowly help you to improve your financial situation over time. Having said that, it’s not a fun place to be in, so it’s important you do what you can to avoid it.
What Should you do if You’re Going to Miss a Loan Payment?
If you have an upcoming due date, the hope is that you have enough time to find a way to get the money you need to pay it on time. But if you don’t, there may still be something you can do to limit the damage.
Let Your Lender Know Ahead of Time
If you know you’re going to make a late loan payment, don’t keep quiet about it. It’s a good idea to be upfront with your lender and let them know as soon as you can. This won’t be the first time that someone has made a late loan payment, so they may even have potential options to give you a hand, like pushing back your due date or possibly even allowing you to skip more than one payment for the time being. However, it’s very important to know that some financial institutions may not be able to do anything for you in such situations.
Like we mentioned, in come cases, you may be able to make a late loan payment as well, even though we would never advise that. However, keep in mind that some financial institutions may charge late fees.
Also, in some situations, if you can make your payment in less than 30 days after the initial due date, you may not end up with late payments on your credit report. This way, you can at least avoid doing damage to your credit score.
How to Manage Loan Payments for Student Loan Borrowers
If you’ve had to take out a student loan to help you pay for college, there’s a good chance that you’ll have a certain amount of student debt hanging over your head for some time. If you’re having trouble paying it off, there may be certain ways for you to make this process more manageable.
1. Apply for a Deferment
If you need a little breathing room, you might be able to qualify for a deferment. A student loan payment suspension can give you a chance to reorganize yourself and get your finances back on track so you can start to make your payments again. You may be able to qualify if you can prove that you’re dealing with some sort of financial difficulties that will prevent you from making your payments in the near future.
2. Income-Driven Repayment Programs
Even if you can’t get your payments deferred, there may still be ways to have your regular payments lowered through income-based repayment programs. These programs are meant to enable people to continue paying off their student debt while making these payments more affordable by bringing them in line with your income.
What Happens When I Miss Payments on my Credit Card?
If you start to miss your credit card payments, there are a few different things that can come into play. For starters, you might need to pay interest and possibly late fees on the payments you missed. Next, your interest rates may go up. On top of that, there’s a good chance that you’ll do some damage to your credit score.
The good news is that when it comes to your credit card, you should have the option of making a minimum payment (which will be a small portion of the total amount you owe) for each billing cycle which will keep your account in good standing and help you avoid late fees and damage to your credit score. While it’s nice to have this option, you should always do your best to pay off as much of your credit card bill as possible.
What Can I do to Avoid This Situation in the Future?
Managing your loan payments is a big responsibility. The things we’ve listed above are band-aid solutions that, while useful, don’t get at the root of the problem. Your main goal should be to put yourself in a situation where you don’t find yourself stressing about paying your bills on time or missing loan payments. Otherwise, you might have a hard time achieving your long-term financial goals.
Create an Emergency Fund
An emergency fund is meant to safeguard you against future financial emergencies that you might run into. This money should be used solely for emergency expenses and shouldn’t be dipped into for any other reason.
Having a healthy emergency fund in place can help you avoid needing to apply for loans, or at least help to minimize the amount of debt you need to take on to help you deal with emergencies. While it won’t happen overnight, making consistent contributions to an emergency fund can be a huge help down the line.
Final Thoughts
We understand that managing a loan can be a lot to handle. You need to think about interest rates, your loan term, your loan amount, due dates, and all sorts of other aspects of your loan to keep things on track.
It’s important to understand that missing a loan payment can lead to serious consequences. So, because of that, you’ll want to know what to do moving forward to avoid finding yourself in a similar place.
When it comes to borrowing money, make sure to never apply for a loan that you won’t be able to repay. You can use a simple loan payment calculator to get an idea of what it’ll cost you and compare this against your budget. If things don’t line up, you might need to look elsewhere for financial assistance.
Disclaimer: The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only, and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through FreshStart Blog or CreditFresh website.
