What Should You Do If You Can’t Make a Loan Payment?

According to a survey published in 2021 by Forrester Consulting, seven out of every 10 Filipinos are stressed

According to a survey published in 2021 by Forrester Consulting, seven out of every 10 Filipinos are stressed out by debt. The respondents not only considered debt management to be one of the most difficult parts of dealing with their personal finances, but they also thought of debt as a significant obstacle in preventing them from building savings. Every month, a lot of people and households make considerable effort to ensure that they can meet their credit card, home, or car loan payment deadlines. Otherwise, they risk incurring hefty interest rates and fines, which can then snowball and get them caught in a much-dreaded debt trap.

If you have a loan yourself and you’re constantly worried about missing your deadline for your car or home loan payments, you’re not alone. Perhaps there was a time when you thought that you wouldn’t be able to make it to your payment deadline, or maybe you’ve already reached that point. In any case, the last thing you need to do when faced with this possibility is to give in to your fears and panic. Missing your loan payment deadline is not to your advantage, but it’s also not an impossible situation.

What Are the Consequences of Being Unable to Pay Your Loans?

Missing a payment deadline doesn’t mean that you’re automatically neck-deep in debt. To conquer your fears, it’s a good idea to determine what it means to miss your payment date. Here are some of the things you can expect to happen should you fail to pay your loans within a given period:

Losing Access to Credit Privileges 

If you use credit cards and are not able to meet your payment deadlines, then you will no longer be able to use the said cards. Your account will likely be suspended or canceled, and you’ll have to pay your outstanding balance before your credit card provider reinstates your account. In some instances, you’ll have to reapply for a new credit card with a higher interest rate as a consequence of making late payments, if your application gets approved at all. It’s also possible that you’ll have a hard time getting another loan approved if you’re missing payments on a current loan.

Incurring Fees and Higher Interest Rates

Failing to meet your obligations has plenty of financial consequences, among which are incurring late payment fines and fees. It’s highly likely that you’ll have to deal with much higher interest rates as well, which can cause your debt to significantly rise in value if it’s left unaddressed. These penalties will add to the total sum of money that you owe to your creditors.

Damaging Your Credit Score

A person’s credit score indicates their loan worthiness or how likely they are to fulfill their financial obligations. This number rises when a person pays their loans on time and in full, but it takes a hit when a person misses even just one payment deadline, files for bankruptcy, or maxes out multiple credit cards, for example. Having a low credit score reduces your chances of getting approved for future credit card and loan applications.

Dealing With Communication from Creditors

In an effort to get their money back, some creditors take an active role in preventing their borrowers from missing their deadlines. Some organizations take to calling people or sending them messages to remind them that they need to settle their dues soon to avoid fines and enjoy better interest rates. While you might find their persistence annoying, you can rest assured that you won’t be harassed or that unethical method will be used to compel your repayment. There’s a law in the Philippines that protects people against this kind of abuse.

Getting Your Car or Home Repossessed

Defaulting or failing to pay a secured loan within a predetermined period will cause you to lose your collateral. This means that you could lose your home or car, depending on whether you applied for a housing loan or a car loan. Aside from losing these properties, you’ll also lose the money that was already paid toward the loans.

The consequences of not paying on time may seem worrisome, but knowing exactly what to expect will help you temper your concerns and think more clearly about your next steps in resolving the issue.

How Can You Best Approach a Situation Where You’ll Miss Your Payment Deadline?

There are times when money is especially tight and missing your next payment deadline gives you the best chance to support more urgent or important expenses. Perhaps there’s a need to redirect your debt-payment budget to support a loved one’s medical needs or to sustain your utilities for the month. This is a difficult decision to make, but there are still a few steps that you can take to soften its possible consequences. These include:

Communicating With Your Creditors

Creditors, which can be your credit card issuer or the bank that approved your home or car loan, are naturally interested in recovering the money they lent. As such, most of them are willing to work with borrowers to help ensure that their accounts can be settled as soon as possible. If you need a reprieve from your financial responsibilities, however, perhaps you can negotiate with your creditor and request to extend your deadline or reduce your interest rates for some time.

Paying Off Your Loans According to Priority Level

Having a lot of loans and paying for all of them at the same time can seem like a never-ending challenge. Because you must divide the money for loan payments so many times, the amount you pay each month may not make a noticeable dent in your debt. In this case, it’s a good idea to prioritize the loans that you want to pay off first. If you can’t live or work without your own home or car, then pay off the loans for these properties first while keeping the payments for the other loans at a minimum. After this, you can work on loans that have high-interest rates. Once these are done, you can proceed with paying loans with low-interest rates.

Preventing Your Debt from Getting Out of Control

It’s important to have a clear idea of what your wants and needs are at all times, especially if you’re still in the process of paying off existing loans. If needed, be prepared to cut your spending on some of your wants and redirect the funds that you’ve saved to reduce your outstanding balances. As much as possible, don’t use credit or loan products with high-interest rates to pay for items that you don’t need while you’re still trying to work your way out of your existing debts.

Checking Out Better Payment Options and Setups

Perhaps you’ve reviewed your loans and you’ve noticed that their interest rates make it quite difficult for you to get yourself out of the red. Or maybe you’ve noticed a loan product that offers 0% interest in the next few months or so⁠—a condition that will enable you to clear your current debts in a shorter period. In these cases, check if transferring your balance from one creditor to another will work to your advantage and enable you to meet your financial goals, the chief of which is freeing yourself from debt as soon as possible. Study your options and evaluate your payment capabilities carefully to ensure that your decision will work to your advantage and not get you deeper into debt.

There’s no one-size-fits-all solution to tackling debt and missed payments, but following these tips should help you make a bit of progress in overcoming this challenge.

How Do You Avoid Being in a Situation Where You’ll Miss Your Loan Payments?

Loans can certainly be used to financially empower individuals and organizations, but they’re a heavy responsibility as well. Before you sign up for a loan, determine if it will be used to finance a want, a need, or a venture that will provide you with a return on investment down the road. Also, do the math first and carefully consider if you’re capable of fulfilling your financial obligations to your creditors in a timely manner. If you find that you’re spreading your finances too thin by getting a loan and there’s a good chance that you’ll get yourself into a lot of debt because of this decision, perhaps it’s best to reevaluate your options and the consequences you’re willing to take on just to finance your next project or acquisition.

Being in debt is a stressful situation for a lot of Filipinos, but remember that missing a payment deadline for a loan is not the end of the line. Prevent your loan from ballooning by taking control of the situation as soon as possible. Think clearly when making fiscal decisions, acknowledge the issue when you see it, and use smart strategies to deal with your debts, and you’ll have an easier time using loan products to your advantage.