What If You Can't Pay?

If your expenses, including your needs and your loan repayments, are more than your income, you could find yourself in serious financial trouble that will quickly affect other parts of your life.

There are things you can — and should — do to avoid delinquency and default.

But you have to recognize the warning signs of trouble.

Among the most common red flags are taking money out of savings to pay your bills, always finding yourself out of money before your next paycheck arrives, and skipping one or two payments each month so you can cover the others.

You can begin by taking a careful look at your budget. Where can you cut spending? Is there a way to increase your income? Is it possible to do both?

Next, talk to your creditors, ideally before you miss a payment. Resolving problems is more difficult if you are in default.

  • If your monthly payments are higher than you can afford, try to have the monthly amount reduced, or, in the case of student loans, ask to switch payment plans or request a deferment.
  • You might consider consolidating your loans so you make one payment instead of several. The payment period will probably be longer than it is on at least some of your individual loans.

Remember that if you repay a loan over a longer period of time, you will pay more interest. This makes borrowing more expensive. But, in this situation, it is usually better to pay more over the long term if it means you can avoid default now.
There are serious consequences of delinquency:
  • You could be evicted, and have no place to live.
  • Your electricity and phone could be turned off.
  • Your credit card could be invalidated.
  • Your wages could be garnished and your income tax refund, if you have one, claimed by your creditors.
  • Your credit record and credit score could be ruined, making it hard to borrow again.