Job loss can severely affect your finances, especially if you’re juggling debts like a personal loan. When you lose a regular source of income, you may struggle to make payments and feel unsure of what to do next. The good news is you may have more options than you think.
If you’ve lost your job and can’t make payments, here are some practical steps you can take to minimize the damage and protect your long-term financial health.
What Happens if You Miss a Personal Loan Payment
If you’re late paying your personal loan, you may have a grace period of up to 15 days before penalties apply. After the grace period expires, you should expect a late fee, and you may lose the grace period on future payments.
After your payment is 30 days late, your lender will likely report your missed payment to the three major credit bureaus: Equifax, Experian, and TransUnion. If you make a full payment before it’s 30 days late, you can avoid negative credit reporting.
Push past 30 days and into 60, 90 or more days without a payment, and you can expect more late fees, a frozen account and collection activity from the lender. After 180 days, the lender may close your account, report the debt to a collection agency or pursue legal action.
“The impact on credit profiles and scores of any missed or late payment is negative,” says Kyle Enright, president of lending at Achieve. “Certainly more so if in default.”
Missed payments or defaults can stay on your credit report for up to seven years, making it difficult to be approved for loans, credit cards or housing in the future.
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What to Do If You Can’t Pay Your Personal Loan
Contact Your Lender
The first thing to do if you’ve lost your job and cannot keep up with personal loan payments is to contact your lender. Personal loan companies typically have hardship programs for customers experiencing job loss, and you may have options for deferment, forbearance or modified payments. Be honest about your job loss and your projected timeline for recovery.
“Acting before you miss a payment improves your chances of avoiding late reporting and penalties,” says Natalia Brown, chief compliance and consumer affairs officer at National Debt Relief. “These options can ease immediate pressure, but confirm the impact on interest accrual, loan term and credit reporting.”
[Read: Best Debt Consolidation Loans.]
Update Your Out-of-Work Budget
If you’ve lost your regular source of income, adjust your budget to reflect your current income or savings, prioritizing necessities such as housing payments, food, utilities and insurance while cutting back or eliminating nonessential spending.
If you’re getting severance or unemployment income, you can use it to cover essentials and minimum debt payments, such as your personal loan and credit card payments. Avoid adding new debt unless absolutely necessary. If you have an emergency fund, this is the time to use it.
“Using severance pay and unemployment benefits to stay afloat during financial turbulence is recommended, and frankly for this reason,” says Leslie H. Tayne, finance and debt expert and founder of Tayne Law Group. “For those experiencing financial hardship, it’s important to go back to the drawing board with their budget to see what is feasible with their new income.”
While job searching, consider temporary, gig or freelance work to keep some income flowing in — even if it’s not what you’re used to earning.
“The current job market is competitive in some fields, while others are growing,” says Tayne. “People experiencing financial hardship may need to pivot to a different industry to stay afloat and prevent their financial situation from worsening.”
Consider credit counseling or a debt management plan if loan payments don’t fit into your out-of-work budget.
Take Action — Even If You’re Behind
Don’t panic if you’ve already missed a payment, but don’t let a tough situation get worse by ignoring it. You’ll have fewer options the longer you wait.
Even if you’re already delinquent, communicate with your lender about payment plans while clearly explaining your situation, especially if it’s likely to improve soon with a new job offer.
Also consider these strategies to protect your long-term financial health:
— Regularly check your credit report for errors or collections.
— Maintain records of all communication and agreements with your lender.
— Get help from a nonprofit credit counselor who can review your financial picture and offer recommendations.
“It’s a good idea for consumers experiencing significant financial hardship trying to manage large sums of debt to speak with a debt attorney,” Tayne says, “who can help inform them of their rights as well as negotiate on their behalf.”
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You Lost Your Job. What Happens if You Can’t Repay Your Personal Loan? originally appeared on usnews.com
