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  • Writer's pictureMeurig Chapman

I can’t afford to pay my loan, what should I do?

Financial challenges can strike unexpectedly, and one common predicament people face is the inability to make loan payments. Whether it's a personal loan, a mortgage, a car loan, or credit card debt, struggling to meet your financial obligations can be incredibly stressful. The key is to act swiftly, communicate with your lender, and seek assistance when needed. By taking control of your financial situation and exploring available options, you can work toward a more stable and secure financial future.

Remember, you're not alone in facing financial challenges, and there are resources and professionals available to help you navigate these difficult times.

Don't ignore the problem and take ownership

The first and most crucial step is to acknowledge and own the issue rather than ignoring it. Say to yourself “This is my problem and I need to fix it”.  Ignoring missed payments or defaulting on a loan can lead to serious consequences, including damage to your credit score, legal actions, and the potential loss of assets (such as your home or car). Facing the problem head-on is essential.

Stay calm and assess your financial situation objectively

Panic and stress can cloud your judgment and make it harder to find a solution. Take a deep breath and gather all the necessary information about your loan, including the terms, interest rate, and outstanding balance.

As soon as you realise you're struggling to make loan payments, contact your lender

Open communication is key in these situations. Lenders may be willing to work with you to find a solution, especially if your financial hardship is temporary. Explain your situation honestly and be prepared to provide documentation to support your claims, such as pay slips, bank statements, or other bills.

Explore loan modification options

All lenders should offer loan adjustment / Hardship programs designed to help borrowers facing financial hardship. These programs can include:

  • Payment holiday: Temporary suspension or reduction of loan payments.

  • Loan refinancing: Changing the terms of the loan, such as extending the repayment period or lowering the interest rate.

  • Interest rate reduction: Negotiating a lower interest rate to reduce monthly payments

  • Principal reduction: Reducing the total amount you owe on the loan.

Ask your lender about these options and how they may apply to your situation. Keep in mind that some loan adjustment programs may come with fees or you may end up costing you more in interest over the life of the loan, so be sure to understand the terms thoroughly.

Create a budget

A well-structured budget can be a powerful tool for managing your finances during tough times. List all your sources of income and track your expenses meticulously. Identify areas where you can reduce spending and allocate those savings toward your loan payments. Many budgeting apps and tools are available to help you create and manage your budget effectively.

Prioritise essential expenses

When you're struggling to make loan payments, it's essential to prioritise essential expenses like housing, utilities, groceries, and transportation. Cut back on discretionary spending and non-essential purchases to free up funds for these necessities.

Consider loan refinancing or consolidation

Depending on the terms of your existing loan, you may be able to refinance or consolidate your debt. Refinancing typically involves obtaining a new loan with more favourable terms, such as a lower interest rate or longer repayment period. Consolidation combines multiple loans into one, potentially simplifying your monthly payments.

Explore alternative income streams

Increasing your income through side gigs, part-time work, or government benefits that you are entitled to that you may not be receiving can provide much-needed relief when you're struggling to pay your loans. Use any additional income to catch up on missed payments and reduce debt.

Consider selling assets

If your financial difficulties persist, you may need to consider selling assets you can no longer afford, such as a second car or an investment property. While this can be a difficult decision, it may help you eliminate debt and regain control of your finances.

Seek professional financial guidance

If your financial situation is particularly complex or dire, it may be beneficial to seek advice from a financial counsellor or advisor. These professionals can help you develop a personalised plan to address your debt and financial challenges.

Avoid defaulting on your loan

Defaulting on your loan can have serious consequences, including damage to your credit score, additional fees, and legal actions by the lender. It's crucial to work with your lender to find a viable solution to avoid default. If you believe you will miss a payment, inform your lender in advance and explore alternative arrangements.

Bankruptcy as a last resort

Bankruptcy should be considered a last resort when you've exhausted all other options. Filing for bankruptcy has significant and long-lasting consequences on your credit and financial future. Consult with a budgeting advisor to understand the implications and whether it's the right choice for your situation.

Learn from the experience

Going through a period of financial hardship can be a valuable learning experience. Take the opportunity to reevaluate your financial habits and consider how you can avoid similar challenges in the future. Building an emergency fund, creating a more sustainable budget, and improving your financial literacy are steps you can take to become more financially resilient.

Stay positive and persistent

Dealing with financial difficulties can be emotionally taxing, but it's essential to stay positive and persistent. Remember that financial setbacks are temporary, and with time, effort, and a strategic plan, you can regain control of your financial future.

Seek emotional support

Financial stress can take a toll on your mental and emotional well-being. Don't hesitate to seek emotional support from friends, family, or a therapist. Talking about your challenges can provide relief and help you navigate difficult emotions.


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