Merely taking out a loan can put you in a tough financial situation. You may be obligated to make payments to a lender for many months, if not years. And the interest paid can be as much or more than you borrowed to start with!
However, it is critical that you repay the loan on time to avoid late fees, penalty interest rates, and other charges. Here’s why.
Credit Card Penalty Rates Can Be Hefty
On average, a credit card comes with an interest rate of 15 percent. However, if you make a late payment, your APR can jump to 29.99 percent, or more. I’ve seen the fine print go as high as 43 percent! This may happen even if you have good credit and have made all previous payments on time.
You may also be charged a late fee as well as a returned funds fee if the payment wasn’t made because you didn’t have enough money in your checking account.
Your Items Could Be Repossessed
On top of paying late fees and higher interest rates, your items could be repossessed.
For example, to avoid a title loan repossession, make sure that each payment is made by the due date on the loan documents. In some parts of America, your car can be repossessed after as little as one week after a payment is missed. Typically, you will not be told about the repossession until you see your car being towed away.
What Happens If You Can’t Make a Payment?
If you know that you can’t make a payment, talk to your creditor right away. It may be possible to extend the payment due date or roll the payment back into your loan.
If you have a good history with your creditor, it may be possible to have late fees and other charges waived.
A creditor may also decide to not charge a penalty interest rate or only apply it to the payment in question.
How Can You Ensure Timely Payment?
To ensure that a payment is made on time, you should have it come directly out of your bank account on the same day each month. You can also try to make payments on a biweekly basis to ensure that at least a portion of your balance due each month is sent on time.
It may also help to have a calendar that lists all of your upcoming due dates and how much you owe. In lieu of a calendar, you could choose to have alerts sent to your phone or laptop when a payment is due soon.
When Should You Consider Bankruptcy?
Once you get trapped in the cycle of debt, it can be tough to get out of it. For some, the only way out is to file for bankruptcy. That’s what happened to me.
Experts say that you should file if you don’t think that you can repay the debt in the next three years and payments account for more than 50 percent of your income.
Don’t Let Loan Repayments Haunt You
When you take out a loan, you need to know that you can repay that money in a timely manner. Otherwise, you could lose your car, home or other possessions to your lenders.
It may also be necessary to file for bankruptcy or dip into your savings to repay a debt, which could wreak havoc with your finances in general. So you want to avoid that.
However, there’s no need to let fear or anxiety consume you. By taking proactive steps and making a commitment to responsible financial management, you can regain control and prevent loan repayments from haunting you.
When Debt Collectors Call
When faced with the daunting calls from debt collectors, it’s important to stay calm and learn effective ways to communicate with them. Instead of panicking or avoiding the calls, take steps to protect your finances, rights, personal information, and overall well-being.
Expert Debt Advice
Escaping the grip of debt can often feel like an insurmountable challenge. You try your best to make your payments, but interest charges eat up all your progress. The next month, you’re back to square one. However, there is hope. We’ve consulted experts who shared valuable insights on overcoming debt, offering practical strategies to break free from its clutches.
Here’s what the had to say: How to Get Out of Debt: 13 Expert-Backed Steps for Success
Credit Score Misconceptions
When you’re looking to improve your credit score, you’ll encounter various advice. Unfortunately, not all of this advice is accurate. There are a lot of common misconceptions and myths about what does and doesn’t affect your credit score, as well as how to fix it.
Amanda Kay, the founder of My Life, I Guess, provides valuable career advice and support for anyone striving to make a living and, more importantly, make a life. Whether it's navigating job searches, learning new skills, overcoming unemployment, or dealing with debt, My Life, I Guess has been a go-to resource for career guidance and financial stability since 2013. Amanda's expertise and relatable approach have been featured in trusted publications such as MSN, Credit.com, Yahoo! Finance, the Ladders and Fairygodboss.