What to Do If You Can't Pay Your Loan

[Jun 16, 2009.]

 

Most people borrow money in good faith with the intention of paying it back. But with unemployment at 9.4% and lots of Americans scrambling to keep up with their bills, many people have fallen behind on their personal loan payments and other debts. Here’s what they can do if they are struggling to pay back a loan.

Take Action Now

It never pays to wait until a lender threatens to take legal action for an unpaid loan. Many people are struggling, so some lenders are willing to talk with customers about their options. If a divorce, job loss, illness, or some other serious situation is contributing to financial problems, the lender will want to know that.

Suggest a Solution

People shouldn’t hesitate to suggest a way to resolve their situation. Among the things they can suggest are having their payments reduced for a period of time or having late fees cancelled. They can also ask for a temporary suspension of their monthly payments. If a suspension is granted, the payments could still be added onto the end of their loan, extending the amount of time they have to pay it back.

Debt Settlement

In some cases, a person may be able to negotiate a debt settlement for a loan. This approach involves getting a lender to agree to allow a personal loan or credit card debt to be reduced. The catch is the borrower will have to come up with lump sum to pay off their debt, something that many people will have a tough time doing.

People who are good at negotiating and keep careful records will probably have success settling their own debt. But those who aren’t as confident about their negotiation skills may benefit from using debt settlement services. The debt settlement firm will offer debt counseling, handle negotiations, and set up a payment plan to put aside enough money for a lump sum payoff.

What If a Loan Goes Bad?

Not paying back a personal loan will result in it going to a collection agency. The debt collector is required under the Fair Debt Collection Practices Act to notify borrowers in writing with the amount they owe within five days of first contacting them. The notice should include the name of the creditor. If the situation escalates to the point where a lawsuit is filed, the borrower should consult with an attorney.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.