<commit_before>---
title: So You've Defaulted On Your Loans
date: 2019-04-22 11:00:00 -04:00
categories:
- debt
- credit
image: "/uploads/sharon-mccutcheon-556371-unsplash.jpg"
tweet: 'So you defaulted on your loan... here''s what you should do next. '
posts:
- What's a Personal Loan and When Should You Get One?
- What Are My Options for Student Loan Consolidation?
- What Do I Do If I Get Sued By a Creditor?
---

Defaulting on a loan means that you've missed payments so long that you've broken the payment contract with your lender. This can apply to student loans, personal loans, credit cars, auto loans, mortgages, and more. Basically, any loan you take out can be defaulted on if you stop paying. There are serious, long-lasting consequences to defaulting on your loans, but not all defaults are equal.

## Student Loans

Student loans are one of the worst types of loans to default on. They won't just go away after you pay penalties and your credit takes a hit. They even usually can't be wiped out by bankruptcy. If you default and try to run away from what you owe, the money can still be taken from you through the IRS, having your wages garnished, or through Social Security. Yes, your student loan provider can still come after you when you're old enough to be collecting Social Security.

**Pro-tip:** If you find yourself in a bad financial situation where you are unable to pay your student loans, you don't have to go into default! Call your student loan provider and tell them what's going on. There are ways to either lower your payments or defer your payments until you are able to pay. This is a much better approach than not paying at all.

## Mortgage

If you default on a home loan (also known as a mortgage), your lender isn't just going to penalize you through fees. A mortgage is considered a "secured loan", which means there is something the lender can take back from you if you stop paying. In this case, it means that your bank can force you out of your home through foreclosure if you stop paying your loan. Once a home is foreclosed on, it is then sold so that the lender can recoup the money. Unfortunately, if the house sells for less than you owed on it, you might owe the difference. So even if your home is foreclosed on and you are forced out, you still might not be off the hook.

## Auto Loan

Car loans are similar to mortgages, since they are also "secured loans". In this instance, if you don't pay your car payment, your car can be repossessed by the lender. The car will then be re-sold and you would again be responsible for any money that is still owed on the original loan. This is especially likely in the case of car repossession, since cars lose their value very quickly (often as soon as you drive it off the lot!). 

## Personal Loan

A personal loan is considered "unsecured", because there is usually no collateral put down in exchange. That means that the bank can't physically take anything from you if you don't make your payments. However, the lender can penalize you through late fees and increased interest rates. They can also send your unpaid debt to collections and/or sue you for the balance. This means that you're at risk of paying more money than you would have owed in the first place, and your credit history will take a hit. 

## Credit Cards

When you default on paying your credit card, the consequences might not feel as immediately serious. The bank will charge late fees and after missing 60-days worth of payments, your APR will increase. This will in turn increase the amount of money that you owe every month. At that point, your missed or late payments will be reported to the credit bureau, which will negatively impact your credit score. Some credit card companies will send your debt to a debt collector, which will also be reported to the credit bureaus. You can even be sued by your creditor and taken to court. 

The moral of the story is that you should try as hard as possible not to default on any of your debt payments. The extra penalties, fees, and stress will be worse than the original payments that you owed. However, if you've already defaulted on a loan, there are things you can do to improve your credit for the future.

* Contact your debtors to either settle to pay less than you owe and/or set up a payment plan to pay your balance

* Ask for your paid collections debts to be removed from your credit report

* Continue to work on paying down the debt that you still owe (both in default and not)

* Keep an eye on your credit report and dispute any errors listed

* Only take out debt that you're certain you can pay back

* Make all of your debt payments on time

* Apply for a secured credit card through your bank

*To learn more about improving your credit, check out this piece about [credit invisibility](https://www.maggiegermano.com/blog/what-is-credit-invisibility/). *<commit_msg>Updated So Youve Defaulted On Your Loans<commit_after>---
title: So You've Defaulted On Your Loans
date: 2019-04-22 11:00:00 -04:00
published: false
categories:
- debt
- credit
image: "/uploads/sharon-mccutcheon-556371-unsplash.jpg"
tweet: 'So you defaulted on your loan... here''s what you should do next. '
posts:
- What's a Personal Loan and When Should You Get One?
- What Are My Options for Student Loan Consolidation?
- What Do I Do If I Get Sued By a Creditor?
---

Defaulting on a loan means that you've missed payments so long that you've broken the payment contract with your lender. This can apply to student loans, personal loans, credit cars, auto loans, mortgages, and more. Basically, any loan you take out can be defaulted on if you stop paying. There are serious, long-lasting consequences to defaulting on your loans, but not all defaults are equal.

## Student Loans

Student loans are one of the worst types of loans to default on. They won't just go away after you pay penalties and your credit takes a hit. They even usually can't be wiped out by bankruptcy. If you default and try to run away from what you owe, the money can still be taken from you through the IRS, having your wages garnished, or through Social Security. Yes, your student loan provider can still come after you when you're old enough to be collecting Social Security.

**Pro-tip:** If you find yourself in a bad financial situation where you are unable to pay your student loans, you don't have to go into default! Call your student loan provider and tell them what's going on. There are ways to either lower your payments or defer your payments until you are able to pay. This is a much better approach than not paying at all.

## Mortgage

If you default on a home loan (also known as a mortgage), your lender isn't just going to penalize you through fees. A mortgage is considered a "secured loan", which means there is something the lender can take back from you if you stop paying. In this case, it means that your bank can force you out of your home through foreclosure if you stop paying your loan. Once a home is foreclosed on, it is then sold so that the lender can recoup the money. Unfortunately, if the house sells for less than you owed on it, you might owe the difference. So even if your home is foreclosed on and you are forced out, you still might not be off the hook.

## Auto Loan

Car loans are similar to mortgages, since they are also "secured loans". In this instance, if you don't pay your car payment, your car can be repossessed by the lender. The car will then be re-sold and you would again be responsible for any money that is still owed on the original loan. This is especially likely in the case of car repossession, since cars lose their value very quickly (often as soon as you drive it off the lot!). 

## Personal Loan

A personal loan is considered "unsecured", because there is usually no collateral put down in exchange. That means that the bank can't physically take anything from you if you don't make your payments. However, the lender can penalize you through late fees and increased interest rates. They can also send your unpaid debt to collections and/or sue you for the balance. This means that you're at risk of paying more money than you would have owed in the first place, and your credit history will take a hit. 

## Credit Cards

When you default on paying your credit card, the consequences might not feel as immediately serious. The bank will charge late fees and after missing 60-days worth of payments, your APR will increase. This will in turn increase the amount of money that you owe every month. At that point, your missed or late payments will be reported to the credit bureau, which will negatively impact your credit score. Some credit card companies will send your debt to a debt collector, which will also be reported to the credit bureaus. You can even be sued by your creditor and taken to court. 

The moral of the story is that you should try as hard as possible not to default on any of your debt payments. The extra penalties, fees, and stress will be worse than the original payments that you owed. However, if you've already defaulted on a loan, there are things you can do to improve your credit for the future.

* Contact your debtors to either settle to pay less than you owe and/or set up a payment plan to pay your balance

* Ask for your paid collections debts to be removed from your credit report

* Continue to work on paying down the debt that you still owe (both in default and not)

* Keep an eye on your credit report and dispute any errors listed

* Only take out debt that you're certain you can pay back

* Make all of your debt payments on time

* Apply for a secured credit card through your bank

*To learn more about improving your credit, check out this piece about [credit invisibility](https://www.maggiegermano.com/blog/what-is-credit-invisibility/).*
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