A personal loan can offer a way to access the funds you need without paying exorbitant amounts of interest. However, if you find yourself unable to make payments as agreed, you might not know what to do. The good news is you may be able to use one or more types of debt relief for personal loans to rediscover financial stability.
Do personal loans qualify for debt relief? Let’s take a closer look.
What Happens if You Can’t Repay a Personal Loan?
Struggling to pay back a personal loan is more common than many people realize, but ignoring the problem rarely makes it better. Some borrowers try to tough it out alone, while others hope the debt will simply go away—but that can lead to bigger financial trouble.
If you’re asking yourself, “What happens if I can’t afford my personal loan?” it’s important to know you do have options for debt relief. The sooner you act, the more choices you’ll likely have.
If you stop making payments and don’t reach out to your lender, the consequences can escalate quickly. Your account may be sent to collections, and the debt collector could take you to court. Failing to respond to a lawsuit usually results in a default judgment, which can open the door to wage garnishment or even funds being pulled directly from your bank account.
Meanwhile, missed payments and collection activity will continue to damage your credit score, making it harder to qualify for new loans, credit cards, or even favorable interest rates in the future.
Is There a Way to Get Personal Loans Forgiven?
Unlike student loans, personal loans don’t come with built-in forgiveness programs. That means you can’t just have the balance wiped away.
But there are still ways to manage what you owe. Most debt relief options won’t erase your loan entirely, but they can make repayment more affordable—by reducing your interest rate, lowering your monthly payment, or helping you settle for less than the full balance.
Options for Debt Relief for Personal Loans
Seeking relief for personal loan debt can be daunting. Keep in mind that the earlier you act, the more options you’ll typically have. Here are some common strategies:
Contacting Your Lender
Depending on the circumstances, your lender may be willing to work with you. That might mean temporarily suspending payments, lowering your monthly payments, or lowering your interest rates.
It’s important to reach out to your lender as soon as you know you’ll have trouble paying. Lenders usually appreciate proactive borrowers, and they’re more likely to be helpful if you get in touch before your payment due date.
Debt Consolidation/Refinancing
Consolidating your debt or refinancing your existing personal loan may offer some relief from personal loan payments. When you consolidate your debts, you take out a loan and use it to repay your creditors. Instead of paying multiple creditors, you just pay toward the consolidation loan each month.
If your personal loan is your only debt, you may be able to refinance it. This involves taking out a loan with better terms and using it to pay off the personal loan.
Consolidation or refinancing only makes sense if your new loan comes with a lower interest rate and other favorable terms. Otherwise, you could end up with more debt.
If you’re looking for a debt consolidation loan, it’s important to avoid scams and search for reliable personal loans. Legitimate lenders won’t make unsolicited phone calls or make promises that sound too good to be true.
Debt Settlement
Debt settlement is when you resolve your debt for less than its face value. Settling a debt takes some negotiation, and there’s no guarantee that the collector will accept. Even so, it may be worth considering.
Bankruptcy
Bankruptcy is a last resort, typically considered only when individuals have multiple large debts that cannot be realistically paid off. The bankruptcy process discharges most types of unsecured debts, such as credit cards and personal loans, so it can be a way to achieve a financial fresh start if things get desperate.
Take Charge of Your Financial Future
Dealing with troublesome debt can have ill effects on every part of your life. Facing it head-on can be uncomfortable at first, but when you take the time to understand your options regarding debt relief for personal loans, you’ll be that much closer to being debt-free.
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