You did not plan on it. In fact, you worked to prevent yourself from ever being in this position. One thing happened after another, and now you find that you may not be able to make your car payment. What should you do?
Now is a time to think of the long-term effects of the actions you will take today. The decisions you make will have an impact on your future ability to finance a car, gain additional credit, purchase a house, and could even raise the cost of your insurance.
Now is a time to minimize the damage done to your credit score.
Tip #1: Talk to your lender.
It is upsetting, even embarrassing, when you find that you will be unable to meet your monthly payment. Some people avoid that uncomfortable conversation and ignore calls from their lender when payments fall behind. That’s not the best move.
If you want to protect your credit reputation as much as possible, here’s a tip: Call the lender before they call you.
Contact your creditor as soon as you suspect you will not be able to make your car payment. Learn options available to you to avoid a hit to your credit score and possible repossession.
Some financial institutions let you periodically skip a payment for a fee. Skip-a-pay is useful when your financial situation is temporary and you believe you can get back on track soon. It is important that you use this option before you fall behind. This option is usually not available if you have not been making payments on time.
Perhaps you think you have a longer-term issue. Discuss the possibilities of a loan modification with your lender.
A loan modification extends the time you have to pay your loan fully, resulting in a reduced monthly payment. Creditors are usually open to an arrangement like this if you can demonstrate you will be able to make the lower payment in the future. Have your numbers organized to show the income you have coming in, your expenses, and how a lower amount will help you continue to make on-time payments.
Tip #2: Get help.
You are likely going to need to reconsider your spending habits. This can be stressful. Before panic sets in, solicit the help of a third party to evaluate your finances. Having someone else look at your situation may reveal changes in your spending you have not considered.
Choose someone you can trust to be honest with you. If you can’t think of someone to effectively help you in this way, consider a debt counseling service. A Google search will reveal many debt-counseling services. Look for those that offer assistance without a fee.
Your lender may have resources to refer. Some credit unions sponsor third party debt counseling for their members. Genisys Credit Union offers free assistance through Accel Money Management. Accel provides free budgeting, debt management, and money management advice.
Tip #3: Evaluate your car.
Difficulty in making your car payment may have less to do with your overall spending and more to do with the car itself.
Is the cost of operating your vehicle higher than anticipated?
Is your vehicle less fuel-efficient than you expected?
Are you paying much more for insurance that you once planned? When is the last time you got a competitive quote on your auto insurance?
Are you driving more vehicle than you can afford?
Answer these questions when you are having difficulty making payments. Your best course-of-action may be to sell your car and move to something more affordable. You may love your car, but face it – your car probably will not be with you many years, but your damaged credit score may linger a long time if things get too out of control.
Stay in control.
Perhaps the worst action is to do nothing when threatened with the inability to make payments. Don’t fall into this trap and wait for things to happen to you. Stay calm and take control. Following these tips may be all you need to maintain your good credit.
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