No one makes the perfect financial decision every time. The choices may even appear solid at first, but later on it gets worse. For example, they will issue a car loan (something with big fees) just a few months before a car manufacturer lowers prices.
After the dip, “I was underwater on loan,” says North Carolina resident Jay Kashmir. In other words, he was in debt suddenly more than the new electric wheel was worth it. “I knew (it was coming), but I would either wait to buy it or just leased the car.”
Luckily, you can recover from bad loan decisions and experiences by tweaking your budget, re-recognizing yourself with debt, and perhaps with some help. The recovery process usually begins with letting go of a past that is no longer in control.
“They’ve dug themselves into holes, so they’re kind of be-hitting,” says Barry Coleman, vice president of the National Credit Counseling Foundation (NFCC), where borrowers regret it. “They have shame, or they’re mad at allowing this to happen. We approach what good can happen to good people.
1. Breathe, then the budget
Whether you can afford to pay for your personal loan, regret your student loan, or upside down on a car loan like Kashmir, the first step is to breathe. As Coleman says, let go of the decisions and bad luck that led to your situation. Next, create or update your budget.
Look at budgeting as a foundation. Cut costs, and, at the very least, or even better, carve out space for extra loan payments, and you can set yourself up for success.
2. Learn about domestic and international loans
The bad loan you borrowed hasn’t disappeared, so it’s wise to fully understand it, warts, and everything. For example, if you regret taking on a high profit obligation, check out the most important part of your loan agreement. Taking this step will help you avoid:
- Late payment
- Required fee
- Predatory Trap
Open and maintain a line of communication with your lender while you are in it. If you don’t remember the lender, please draw a free credit report through AnnualCredItReport.com.
Once you share details about your situation, your lender is willing to adjust the terms. For example, financial institutions can optionally offer to temporarily postpone or reduce their monthly fees.
3. Ask for help (if you know where to find it)
Even if your lender is providing assistance, you may be rightly concerned about the objectivity of that advice. It is always wise to seek professional assistance from someone who has no interest in your repayment.
A certified credit counselor can be a good cost option to recover from a bad loan decision. The Department of Justice maintains a list of approved counselling agencies. You can also rely on agents who are members of the NFCC.
The counselor “can help consumers assess the situation,” says NFCC’s Coleman, who himself is a former counselor. “We’re reviewing the terms of the current loan…but we’re going to identify why the loan is a problem: they don’t have enough money to cover all their obligations or because they faced some sort of adversity in their situation.”
What we found was that the faster consumers can deal with even the smallest hints of financial difficulties, the better. If they are seeing financial stress coming down the road or beginning to experience it, reaching out for help is a great strategy. Often people wait and come to us as a last resort if their situation becomes truly miserable. There are few options that recommend falling further below the road.
– Barry Coleman, Vice President of the National Credit Counseling Foundation
4. Create a plan and stick to it
Hopefully, at this point you’ve made room for your budget for your bad loan payments, or at least you’ve found a certified financial professional to help you navigate your debts. The next thing to come is to implement a debt payment plan that you can stick to.
For example, Kashmir, the owner of Tesla, is not idle.
“We paid extra monthly to the principal just to fill the gap,” says Casimir, who works for Sage, a subsidiary of Red Ventures, which also owns the bankrate. “I have also explored car sales, but haven’t reached the point of equity that makes economic sense.”
Your plan must be specific to your situation and goals.
- If you want to zero balance as quickly as possible: You can temporarily cut costs and adopt a kitchen sink approach to monthly membership fees and adopt a snowball or avalanche method.
- If you simply need a monthly payment (or interest rate): You can consider refinancing, especially if your credit is good.
If you throw all the red cents into your debt, but then experience the financial surprise that your car might break down, or that you might have hit a mountain of medical bills, you will never have a safety net to retreat. That’s why replenishing your rainy day savings is key as part of your loan repayment strategy. This advice applies to most of us. According to Bankrate’s annual emergency savings report, approximately 33% of Americans have more credit card debt than emergency savings.
sauce: Fundraising Emergency Savings Survey
5. Consider refinancing
Debt consolidation loans offer something like a redo. Replace bad loans with new ones. Ideally, a lower interest rate, a better fit, monthly payments, and a more accessible lender.
Regardless of the type of loan, consolidation and refinance are co-signers or co-borrowers that are particularly if you have stronger credit than before or can trust. Also, if you can qualify for a loan that does not include an origination fee (which could cost a free loan with a higher APR).
Let’s say you have a bad loan in your ledger and you are considering refinancing your personal loan.
| scenario | Potential solutions |
|---|---|
| Your trust has improved as you borrowed last time | Get a low-interest personal loan to pay off your existing debt. |
| Can’t afford monthly payments | Consider a loan with a longer repayment period (at the cost of overall interest). |
| You can realistically give a quick repayment | Compare balance transfer credit cards and debt consolidation loans, as the former offers potential interest rate repayments (usually 12-21 months before the card promotion APR expires). |
| Your finances feel unstable | We will explore ways to consolidate again without compensation, including debt management plans with credit counselors. |
How to avoid another bad loan decision in the future
Once you’ve made your way to recovery, we might review the origins of your bad loan experience. Perhaps you didn’t choose the best bad credit loan company as you were in an emergency situation and didn’t have emergency funds to evacuate. Or maybe it’s because you lack financial education when you were younger and you don’t fully understand what you’re into when you sign on the dotted line.
Whatever the cause of your past predicament, it works to avoid it happening again. For example, you can establish savings on rainy days, or study how installment loans work and how to calculate your personal loan payments.
On his part, Kashmir shares his second regret about Tesla’s fundraising experience, despite having originally secured competitive interest rates. “If I had been shopping, I might have gotten even better rates,” he says.
“If I had to do it, I think I would have done what most people are doing — I’ve won Google,” Kashmir added. “That’s going to be the first step. Then I probably reach out to the credit unions (CUs) I use now and know that CUs often offer very competitive rates.”
In fact, if you are taking out a personal loan in the future, be particularly wise to check with a federal credit union. They need to cap the interest rate at 18%, almost 35.99%, the 35.99% that is charged by some banks and online lenders.
Comparative shopping personal loans are key to getting the best deal possible. And while the strategy isn’t entirely innocent, this can reduce your chances of getting a bad loan again.
