How do you manage outstanding balances on loans, like auto loans or student debt, when you don’t have enough cash for payments? The good news is there are resources available to offer assistance and strategic moves you can make to ensure you don’t miss payments and start to fall behind.
Take a moment to breathe, gather all of your necessary documents and get ready to crunch the numbers. Here’s what you need to know about making loan payments when money is tight.
Contact Your Loan Servicer or Creditor
If you know cash is tight and you will have trouble making your payment, the first step you need to take is to contact your loan servicer, lender or creditor.
Andrew Lokenauth, personal finance expert at Fluent in Finance, recommends communicating with your lender as soon as possible. Do not wait for the creditor or lender to contact you. You might be eligible for programs that can help borrowers struggling financially.
“If you are facing financial hardship due to a temporary situation, such as a job loss or medical issue,” Lokenauth said, “some lenders may offer hardship programs to help you get through the difficult time.”
Another option may be a smaller payment plan.
“Many lenders will allow you to set up a payment plan which allows you to make smaller, more manageable payments,” Lokenauth said. “This can help you avoid defaulting on your loan.”
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Track the Spending in Your Budget
Every dollar counts when cash is tight. Take a moment to review your budget again and get a clear understanding of where the money is going each month.
You should review spending as it pertains to fixed, variable and periodic expenses and be able to quickly recognize areas where you can save. Do you have a recurring subscription for a streaming service you barely use? Unsubscribe from it. Do your grocery receipts add up because you’re regularly purchasing nonessential items? Make a list and stick to it for store outings.
Tracking spending also can give you the chance to review any changes in recurring bills. For example, if your Wi-Fi statement has increased, call your provider to discuss it. Find out options to reduce these rates.
In some cases, it may be more financially reasonable to switch to another provider. Continue to track your spending and stay on top of how much money you have coming in and where your money goes each month.
Prioritize Loans With High Interest Rates
You should pay off loans with the highest interest rates first, Lokenauth recommended. Consider using the following strategies for tackling your loans:
- Refinancing. “If you have a high interest rate on your loan,” Lokenauth said, “refinancing may be an option to help lower your monthly payments.”
- Consolidation. Those who consolidate debt can combine debts under one umbrella at lower interest rates. This is often beneficial for those juggling several student loans, for example.
As you work through paying off your existing debt, be careful not to take on any new debt, if you can help it. Now is not the time to make impulsive purchases for items you don’t need.
Pay the Minimum Monthly Payment
If you are able to make only the minimum monthly payment on your loans, pay this amount. This may not be enough to make a dent in your balance, but it is the minimum amount required. It keeps lenders and creditors from flagging your account.
Over time, as you can afford it, you’ll be able to put a little more toward your balance and eventually pay off the debt in full.
Seek Financial and Legal Assistance
If you are unable to make payments on your loans, you should seek assistance from a credit counseling agency, Lokenauth said. It’s also a good idea to work with a financial advisor if cash is tight. The advisor can help you develop a plan for paying off your loans and managing your finances.
What if you can’t make your loan payments and are at risk of a lawsuit? You might find it helpful to seek legal assistance.
Lokenauth said, “This protects your rights and explores options for resolving the issue.”
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