What to Do When You Can’t Pay a Lender

Sometimes debt just gets out of control. You do your best but life’s circumstances get in the way. Obviously you want to do all that you can to keep your good credit. But what do you do when you truly can’t pay a lender? How do you work with them?

First, Try to Solve the Problem

Are you absolutely certain that you can’t pay a lender right now? There’s a big difference between being truly unable and money simply being tight. If your income has been slashed then maybe you can cut out all discretionary spending in order to pay your debt. So, do the math. Its it possible for you to make at least your minimum payments for the time being if you cut back somewhere else?

Also, review your existing assets to see if there’s a way to pay off that debt after all. Can you sell an extra car? Perhaps you can rent out a room in your home? Maybe you have a vacation savings account that you can dig into in order to pay that debt off and get the lenders off of your back? Explore all of the options that you have at your disposal to pay off the debt, pay down the debt, or at least meet your minimum monthly payments.

Next, Try To Get Help From The Lender

If you can’t pay a lender in full, but you do have some money to work with each month, then you might be able to work with the lender to make your payments more manageable. Contact the lender to find out exactly what your options are. Some of the things that lenders can do for you include:

Reduce or waive monthly payments
Reduce interest rates in order to make payments more manageable
Change the monthly amount due
Alter the due date of your payment if you’re just slightly behind
Waive late fees and other fees to bring your account current
Lower the total amount due if you pay it off as one lump sum

Ask your lender if they have any hardship programs. After all, if you’re struggling to make payments, it’s likely because of a hardship. Many people lost income due to COVID-19. Lenders responded by opening up their hardship programs to more people than ever before. Hardship programs help to postpone or reduce payments for a period of time, usually anywhere from one month to one year.

What To Do When You Can’t Pay a Lender Who Won’t Work With You

Sometimes you come across a lender who just isn’t willing to work with you. It might be their policy. Alternatively, your income and debt situation might be out of the realm of what they’re willing to work with. Whatever the case, the lender says that you either need to make your minimum monthly payment in full each month or they’re going to add late fees, increase your interest rate and/or ding your credit score. So what do you do when you can’t pay a lender that’s holding this bottom line?

Debt Consolidation On Your Own

Are you able to move the debt around in order to make paying it off more manageable? Or potentially to find a lender that’s willing to work with you a little bit more based on your own situation? For example, could you take out a personal loan, refinance your mortgage, or balance transfer in order to pay off the lender? If you can consolidate the debt to a loan with better terms then maybe you can pay it off.

Of course, some of these things have their own consequences. For example, you’ll likely incur a fee if you do a balance transfer. If that allows you to pay it off, maybe the fee is okay. But if you just switch lenders and then still can’t pay the new lender, you’re just digging yourself a deeper hole.

Work With a Debt Management Company

There are debt solutions that will help you out when you can’t pay a lender. They’ll work directly with your lenders to negotiate the terms. Basically the way it works is that they pay the lender the new negotiated amount. Then you pay them. They become your new lender. Typically they work with you and your original lender to get the debt down to something that’s more manageable for you. This includes lowering both the total amount owed and the monthly amount due.

If you have some money set aside but not enough to pay off a full loan, then you might seek debt settlement. A debt management company can assist you with this as well. They negotiate a payoff amount to settle the debt entirely. Then you pay that amount. Note that this can sometimes have a negative impact on your credit report. If you’re already going to lose credit points because you can’t pay a lender, then it might even out. But make sure that you follow understand all of the terms and issues at play when working with a third party debt management company.

File for Bankruptcy

If you’re so deep in the hole that you can’t see your way out then you might end up choosing to file for bankruptcy. There are different types of bankruptcy. There are many pros and cons. After all, there’s a reason that this isn’t the first choice for anyone who can’t pay a lender. You want to do what you can to avoid bankruptcy.

That said, though, bankruptcy isn’t the worst thing in the world. Plenty of smart, successful people file for bankruptcy then get their finances back in order and go on about their lives. So, if it comes down to it, you might want to consider this as a last resort. If it gets you out from under your debt and off to a fresh start, it could be the way to go. Just make sure that you fully understand the implications for all of your finances, not just the way to resolves the debt.

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Kathryn Vercillo

Kathryn Vercillo is a professional writer who loves to live a balanced life. She appreciates a good work-life balance. She enjoys balance in her relationships and has worked hard to learn how to balance her finances to allow for a balanced life overall. Although she’s only blonde some of the time, she’s always striving for total balance. She’s excited to share what she’s learned with you and to discover more together along the way.