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Find out how to manage your debt better and get back on track financially. Learn the four options that can help make repaying your personal loan easier.
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Personal loans are an excellent way to get quick cash to fund a big purchase or pay off debt. But they can also put you in financial distress if you’re struggling to make payments. If you’re finding yourself unable to make your personal loan payments, you’re not alone. The delinquency rate (60 days or more past due) has increased by about 7% from the previous year.
Falling behind on loan payments can impact your credit score and make it harder to qualify for credit in the future. Fortunately, there are a few solutions to help you get back on your feet. Here are four options to consider if you’re struggling to pay back a personal loan.
1. Loan deferment
One path to consider is loan deferment. Loan deferment gives you the ability to temporarily pause your personal loan payments for a certain period. The lender may also agree to lower your interest rate during this time.
Deferment doesn’t hurt your credit score, but interest will continue to accrue during the deferment period, which will increase the total cost of your loan. If your financial hardship is temporary, or you have an upcoming cash infusion, like a bonus or tax refund, loan deferment may be an excellent option for you.
2. Loan modification
Loan modification entails modifying one or more loan terms to reduce your monthly payments. Your lender may agree to permanently lower your interest rate, extend your loan term, or change your payment due date, depending on your financial situation and loan agreement.
Loan modification can both reduce your monthly payments, making them more manageable, as well as help improve your credit score if executed correctly.
3. Refinancing
Refinancing your loan involves taking out a new loan to pay off your existing personal loan. The new loan typically comes with a lower interest rate, which reduces your monthly payments.
Refinancing can also help you get a longer loan term, which reduces your monthly payments further. However, refinancing may involve a hard credit inquiry, which can negatively affect your credit score in the short term.
4. Debt consolidation
Debt consolidation combines all your debts into one loan with a single monthly payment. If you have multiple high-interest loans or credit cards, debt consolidation can help lower your overall interest rate, making your monthly payment more manageable.
Combining your debts into one payment can also save you time and reduce stress, as you won’t have to worry about making multiple payments to different lenders.
Being unable to pay your personal loan can cause anxiety, stress, and have long-term negative effects on your credit score. If your personal loan debt is high and you find yourself unable to make your loan payments, try not to panic. You have options that can help you get back on track. The key is to communicate with your lender as early as possible and be transparent about your financial situation. By doing so, you may be able to find a solution that works for both you and your lender.
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