Imagine if you wake up one day and you can no longer afford your debt payments. What will you do? According to reports, the number of loans that are 90 days delinquent is increasing. Being late by a couple of days is acceptable. But if your debt is already 90 days late, that means there is a more serious problem that you need to address. It may be possible that you can no longer afford your monthly payments.
There are so many reasons why this can happen. Maybe your source of income was compromised. If you lost our job, that can have a huge impact on your life. You have no money coming in. Even if you have some money saved, that will not last. Chances are, you will really stop paying off your debts because you want your savings to last. If you do not get another job in 90 days, your debt will end up being considered delinquent.
Another scenario that will leave you unable to meet your debt payments is when there is an unexpected medical situation. If you or a loved one gets sick, that can also compromise your finances. The prolonged medical treatments can make you unable to work. Or it can increase your expenses significantly that it affects your monthly credit payments.
A life milestone can also put you in this situation. Parenthood, for instance, can alter your monthly needs. Having kids can be very expensive. They can make you happy but the little ones require a huge amount of money to care for.
All of these are valid reasons why you are unable to meet your debt payments.
What to do if you can’t afford your debt payments
Of course, your creditors will not really care about the changes in your personal finances. They will still expect you to make payments. So what can you do?
The good news is, you are not exactly powerless. There are things you can do to keep your debts from ruining your finances. But you have to act as soon as you realize you can no longer afford to meet your payments.
Here are four things that you can do.
Prioritize your bills
Start by looking at all the bills that you have to pay. Make a list of your monthly expenses. Separate them into two categories – your needs and your wants. The “needs” are those that you have no choice but to pay. This includes food, groceries, utility bills, debts, rent or mortgage, etc. On the “wants” list includes the expenses that you can survive without – like entertainment expenses, clothing allowance, etc.
Once you have the list, you need to rank your priority payments. Start with the “wants” list before you head off to the “needs” list. See how much you can cut back on your expenses. Then look at your income so you can see how many of these expenses it can cover. If it will still not fit, go to your “needs” list and see how you can save on food and even housing costs. If you have to downsize, that’s maybe just what you need to do. Extreme measures are necessary if you think your current situation is somewhat permanent.
Find ways to earn more
If you cannot afford your debt payments because your source of income was compromised, you need to replace that quickly. You have to make sure that your finances are enough to cover your expenses so it will not compromise your credit obligations. Look for side gigs that you can do in the meantime. Be aggressive in looking for a new job. Although you might be feeling down and discouraged, you need to put that aside. Use it to challenge yourself to work on improving your situation. If you keep a positive mindset, there is a higher chance that you will see opportunities around you.
Research your options to pay off debt
Another thing that you can do when you can no longer afford your debt payments is to do your research. There is always something that you can do. Regardless of your financial situation or how much you owe, there is one debt solution that can help you.
If you need a debt reduction, you can opt to use a debt settlement. In this option, you will negotiate with your creditors. You will ask them to allow you to pay only a portion of your debt. You will give them a lump sum amount that will pay off your debts. Anything that is not covered by that payment will be forgiven. It will reflect in your credit report as “settled.”
In case you really have no money to pay it off and this is permanent, bankruptcy may be an option. It will damage your credit score and put your name in the public records. But if that is the only way out of debt, then you should know about this option.
Talk to your creditors
Finally, the best thing that you can do about your debt is to just talk to your creditors. At least, if you want to avoid bankruptcy as your option. Most of the time, creditors are willing to work with credit card holders when it comes to paying off their debts. They want to get paid. Even if it is a small amount. But without a doubt, they will appreciate any effort on your part to try and pay off what you owe. You can suggest a low monthly payment – if that is what you can afford. If you can prove that it is the only amount that you can afford, they will accept. In fact, you can even apply for a state of financial hardship. That way, they will allow you to stop making payments without being penalized for it. Or, you can arrange to pay only the interest of your debts.
There are so many options available if you cannot afford your debt payments. The important thing is, you have to ask first.
Effects of not meeting debt payments
It is very important for you to meet your debt payments. Failing to pay it off would result in a couple of negative effects in your life.
Here are a few of the effects that you will go through.
Debt can bring a lot of stress and tension in your life. According to reports, Millennials who have debt are mostly feeling stressed about it. Whether the debt is a mortgage, car loan, credit card debt, student loans – all of these will made them feel anxious. This proves that regardless of what debt you owe, you will not have peace of mind until you pay it off. This feeling is heightened if you know that you can no longer afford your payments. Because failing to meet debt payments would result in negative consequences. When you have constant stress, it can lead you to lose sleep and other ailments. So you need to do something about your inability to meet payments.
Late penalty charges
We mentioned that your inability to pay off debt will have negative consequences. One is the late penalty charges. This charge will be added to your debts. The longer you go without paying off your debt, the more it will cause your balance to grow. When that happens, you will have more debt to pay off. As your balance grows, the interest amount will increase as well. That will make your debt more costly.
Longer repayment period
Not paying your debts will also make your repayment longer. First of all, the charges will increase the amount that you have to pay. And with your finances compromised, you will have limited funds to pay it off. That means you have to take an even longer time to completely pay for everything.
Damaged credit score
Finally, failing to meet your debt payments would lead to a damaged credit score. When you stop sending your payments, the creditor will report that to the major credit bureaus. That means your late payments will be reflected in your credit report. This can cause your credit score to go down. The next time you have to pull out your credit report, you will see the negative effects of your failure to meet debt payments.
All of these effects may not be life-threatening. But these can compromise the comfort that you will enjoy in the future. So make sure your current debts will not jeopardize your future financial security.