Not making your loan payments can lead to very negative outcomes. When you take out a loan, you should be confident you can make your monthly payments or else you risk running into less than ideal financial complications. So, what happens if you don’t make your loan payments? Keep reading to find out.
The penalties for not making loan payments will vary greatly by loan type and the lender’s process, but missing loan payments can lead to:
It’s understandable if knowing that you’re about to miss a loan payment makes you want to crawl into bed and pull the covers over your head. However, the best way to deal with missed loan payments is head on. If you realize you won’t be able to make a loan payment on-time, you should still aim to make the payment even if it is late. If you make a late payment within 30 days of the original due date, credit bureaus will not be informed of your late payment, which means your credit score won’t be impacted.
Communicating with the lender is also a key step. Be upfront with them about your current situation and see if they’re willing to extend the due date or settle your debt for a lower cost. When you pursue debt settlement, you generally need to make one lump sum payment for the new amount you’ve agreed upon, but you will spend less overall.
If you can’t make multiple loan payments at the same time, prioritize paying secured loans first so you don’t risk losing assets.
If you’re struggling to repay a federal student loan, there are resources available to potentially help you. Federal student loans come with protections that can step in and help if you’re struggling financially, such as:
To help you stay on track and avoid missing payments, let’s look at how you can incorporate your loan payments into your monthly budget. We’re going to dive into how to create a budget and it’s key to remember to include loan payments as a fixed part of your budget.
The first step towards building out a foolproof budget that can help you pay back all of your loans on time is to gather any pertinent info that can help you understand your financial health better.
Download anything that will have information about where your money is going each month.
This includes:
If someone were to ask you how much you spend on groceries each month, would you be able to tell them? What about your gas bill? Clothing? Eating out?
If you find yourself guessing or drawing a blank, you’re not alone. A recent survey from Mint.com found that only 35% of people knew how much money they spent in the previous month. That means 65% of people didn’t know. Oops.
If you don’t know how much you’re spending, chances are you’re not saving enough to truly make investments in your future.
Before we jump into creating a plan for our money (aka — a budget), we need to identify where your money is currently going. That way, you can see how much money you have left over every month to put towards your financial goals and can identify what potential expenses and bad spending habits you can cut.
By either looking at past bank statements or noting each purchase made as you make it, keep track of a month’s worth of spending so you can take a closer look at the big spending picture.
When creating a budget to follow moving forward, you’ll need to focus on spending categories, not individual purchases. Take a look at your typical monthly expenses and begin to group them into spending categories.
Here are a few popular budgeting categories, but you may need to add in other more niche categories to your budget. You do you.
To make this easier, find the last month of each of your bank and credit card statements and go line by line writing down what category each purchase is.
To make budgeting way easier (we’re helpful like that), we’ve created a worksheet to help build out your budget in our course Loans 101: Borrowing Money the Right Way. That course covers a few different budgeting methods, but a quick and easy way to build a budget is to take your net income (your gross pay minus deductions and withholdings) into consideration, not your gross income (the amount you’re paid before deductions and withholdings).
Whether you already have loans or are considering taking them out for the first time, Loans 101: Borrowing Money the Right Way can help you get your lending ducks in a row.
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