What You Can Do When You Can't Make a Loan Payment

How to Get Back on Track

Worried man sorting through a stack of receipts and bills at a table holding a laptop.
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Sometimes life brings surprises. It’s best to take action sooner rather than later if you suddenly realize that you can’t make payments on one or more of your loans. Moving quickly helps you minimize the damage to your finances, and the eventual cleanup is less stressful if you prevent things from getting worse.

Sometimes the solution is easy. It might be possible to sell your car and switch to a less expensive (but safe) vehicle if you can’t afford your auto payments—or even do without a car for a while. Unfortunately, things aren’t always easy, but several strategies help you stay on top of things.

If You Don’t Pay

You'll eventually default on that loan if you stop making payments. You’ll owe more money as penalties, fees, and interest charges build up on your account as a result. Your credit scores will also fall. It may take several years to recover, but you can ​rebuild your credit and borrow again, sometimes within just a few years.

So don’t give up hope. Debtors' prisons were outlawed in the U.S. long ago, so you don’t need to worry about debt collectors’ threats of sending the police to your home. But you do need to pay attention to legal documents and requirements to appear in court.

That’s the worst that can happen. It’s not fun. It’s frustrating and stressful, but you can get through this, and you can avoid the worst-case scenario.

When You Realize You Can’t Pay

Hopefully, you have time before your next payment is due. You can take action before you’re officially late on any payments if that's the case. You may still have several options at this point.

Pay Late

It’s best to make loan payments on time, but slightly late is better than really late if you can’t do that. Try to get your payment to the lender within 30 days of the due date. Those late payments aren't even reported to credit bureaus in many cases, so your credit won't be damaged. This leaves you the option of consolidating or refinancing debt.

Consolidate or Refinance

You might be better off with a different loan. Consolidating with a personal loan can result in lower interest costs and a lower required payment, especially with toxic loans like credit cards and payday loans. And a new loan typically gives you more time to repay.

You might take out a personal loan that you'll repay over three to five years. Taking longer to repay might end up costing you more in interest, but it might not. You could easily come out ahead, especially if you're getting out of payday loans.

Apply to qualify for a new loan before you start missing payments. Lenders don’t want to approve somebody who’s already behind. Start by applying for unsecured loans with banks and credit unions that work in your community, and online lenders. Apply for these loans at the same time so you minimize damage to your credit and go with the best offer.

You can use this calculator to understand how your payments and total owed might change if you get a different interest rate.

Try Secured Loans

Consolidating with a secured loan can help you get approved if you want to pledge assets as collateral, but you'll risk losing those assets if you can’t make payments on the new loan. You could lose your home in foreclosure if you put your house on the line, making things difficult for you and your family. Having your vehicle repossessed may make it hard to get to work and earn income.

Communicate with Lenders

Talk with your lender if you foresee trouble making payments. It might have options to help you, whether it’s changing your due date or letting you skip payments for several months. You might even be able to negotiate a settlement.

Explain that you can’t make the payments, offer less than you owe, and see if it accepts. This isn’t likely to succeed unless you can convince your lender that you’re unable to pay, but it’s an option. Your credit will suffer if you settle, but at least you put the payments behind you.

Prioritize Your Payments

You might need to make difficult decisions about which loans to stop paying and which ones to keep current on. Conventional wisdom says to keep making payments on your home and auto loans, and to stop paying unsecured loans like personal loans and credit cards if you must. The rationale is that you really don’t want to get evicted or have your vehicle repossessed.

Damage to your credit is also problematic, but it doesn't instantly disrupt your life in the same way. Make a list of your payments, and make a conscious choice about each one. Make your safety and health your priorities.

Federal Student Loans

You might have extra options available if you borrowed for higher education through government loan programs. Loans that are backed by the federal government have benefits that you can’t find elsewhere.

Deferment

You can stop making payments temporarily if you qualify for a deferment, giving you time to get back on your feet. This is an option during periods of unemployment or other financial hardship for some borrowers.

Income-Based Repayment

You might be able to at least lower your monthly payments if you don’t qualify for a deferment. Income-driven repayment programs are designed to keep payments affordable. You'll end up with an extremely low payment to ease the burden if your income is extremely low.

Federal student loan borrowers were automatically placed in an administrative forbearance as of March 13, 2020 due to the Covid-19 pandemic. This allowed you to temporarily stop making your monthly loan payments. The suspension of payments was set to expire on Sept. 30, 2021, but it was extended to Jan. 31, 2022, then again to May 1, 2022. You may still make payments if you choose to during this time, however.

Payday Loans

Payday loans are unique because of their extremely high costs. These loans can easily send you into a debt spiral, and the time will eventually come when you can’t make your payments.

Consolidating payday loans is one of your best options when you can’t pay them off or sell anything to drum up cash. Shift the debt to a less expensive lender. Even credit card balance transfers can save you money in this case and buy you time. Just be mindful of balance transfer fees, and don’t use the card for anything other than paying down the payday debt.

It might be possible to stop payment on the check to preserve funds for higher priority payments if you already wrote a check to a payday lender. But this can lead to legal troubles, and you'll still owe the money. Speak with a local attorney or legal advisor who is familiar with the laws in your state before you stop payment. You’ll have to pay a modest fee to your bank even if it's an option.

Credit Cards

Skipping payments on a credit card also requires special attention. Make at least the minimum payment, if possible, although more is always better. Your credit card issuer can raise your interest rate to a much higher penalty rate when you stop making payments. This may make you re-evaluate the priority of which payments to skip and which ones to pay.

Get Help

You might think that you can’t afford to get help if you’re having trouble with loan payments, but you’re not necessarily on your own.

Credit Counseling

Credit counseling can help you understand your situation and come up with solutions. An outside perspective is often helpful, especially from somebody who works with consumers like you every day.

The key is to work with a reputable counselor who’s not just trying to sell you something. Counseling is available at no cost to you in many cases. Your counselor may suggest a debt management plan or another course of action, depending on your situation.

Start your counselor search with the National Foundation for Credit Counseling (NFCC) and ask about fees and philosophy before you agree to anything.

Bankruptcy Attorneys

A bankruptcy attorney can also help, but don’t be surprised when they recommend filing for bankruptcy. It could help solve your problems, but there might be better alternatives.

Public Assistance

You can also find public assistance in many areas. Local utilities, the federal government, and others provide relief to people who need help paying bills. These programs could provide enough relief to help you stay on top of your loan payments and avoid more drastic measures. Start your search at USA.gov, and ask your local energy and telephone providers about available programs.

Moving Forward

These are all short-term fixes. You'll ultimately need a long-term plan to stay on top of the bills. Life is less stressful when you don’t have to constantly put out fires, and you can ideally move on to fund future goals.

Emergency Fund

It’s essential to have emergency savings. Having some extra cash available helps you avoid problems, whether it’s $1,000 to get you out of a jam, or three months’ worth of living expenses. You won’t need to borrow when something breaks if you have enough money in reserve, and you'll be able to pay bills without interruption. The primary challenge is to build your emergency fund, which requires spending less than you earn.

Understand Your Finances

You need a firm grasp on your income and spending to be successful. Track every penny you spend for at least one month. Longer is better. Remember to include expenses you only pay annually, such as property tax or an insurance premium. You can’t make smart decisions until you know where your money is going.

You might have to earn more, spend less, or both. The most common solutions for quick results include taking on extra work, cutting spending, and selling items you no longer need. For longer-term success, work on your career and spending habits that can pay dividends for many years to come.