Many consumers experience trouble when trying to pay off their private student loans and unsure of their options when private lenders do not offer alternative payment plans. Private loans offer less flexibility than federal loans and sometimes consumers feel trapped by oppressive interest rates and large loan totals. When it comes to working with lenders, one of the last things a consumer would think do is to simply stop paying his loans. However, this may be an effective way to make a lender more willing to work with you when if you cannot continue to make payments on your student loans.
Private loans are subject to a statute of limitations and therefore, a creditor must decide to sue the borrower upon non-payment or lose the ability to force the borrower to make payments. If a borrower is sued the creditor must receive a judgment and have that judgment enforced before it can force payment from the borrower. In cases where the borrower has been sued, the court often provides a better forum for negotiation of settlements and realistic payment arrangements.
If a borrower is having financial trouble and cannot make payments on her private loan, making these payments may damage the borrower’s financial health beyond repair. If the payments being made are not decreasing the overall amount owed, it is likely that the borrower will continue to owe money for an indefinite period of time. Saving your money properly and setting aside small rainy day funds may actually benefit borrowers in this situation, even if they stop making payments. Making the minimum payments on a loan may leave a borrower unable to save for retirement or pay for emergency health issues. This could result in catastrophic financial trouble in the future and affect a borrowers overall well-being.
REMEMBER, skipping payments can have harsh consequences including negative impacts on a borrower’s credit score, increases in the overall balance of the loan, and potential lawsuits. However, in certain cases where making minimum payments becomes a “dead-end path” it could be appropriate. Borrowers in such a situation should consult a professional and seek advice as to what type of financial plan would be appropriate.