Singaporeans may be financially-savvy, but managing debt is tricky for many of them. A 2021 survey by Citi Foundation has found that one in three young adults in Singapore struggle in managing their debt. So if you feel ashamed for not making your payments on time, know that lenders are familiar with your problem. As such, they can help you.

You’re technically allowed to default on a loan if your circumstance makes it impossible for you to settle your debt. A default automatically happens if you miss your payment by at least 30 days. But this doesn’t stop a lender from collecting what you owe them. They just transfer the responsibility to a collector. The collector would then get in touch with you and demand repayment.

In films, collectors are often depicted as intimidating individuals who harass defaulting borrowers. Sadly, this can sometimes be true in real life. But the law in most countries forbids collectors from harassing borrowers. They can’t threaten you with a lawsuit or arrest. They also can’t shame you on social media or any public platform.

But it doesn’t mean you get to have an easy time. You still have to repay what you owe, no matter your situation. Running away from your debts will hurt your credit, reducing your chances of getting another loan in the future.

So before defaulting on a loan, take these steps and regain your financial freedom:

1. Get Cash From Your Emergency Savings

If you have emergency savings, use some of it to pay back your loan. Emergency savings aren’t strictly for urgent medical, funeral, or repair needs only. It should be your backup source of funds anytime your cash depletes. You can replenish what you took from it when your income stabilizes again.

2. Sell an Asset

Besides emergency savings, selling an asset can also give you cash fast. But the value of that asset should be enough to cover your payment.

Do not sell your collateral, which is the asset you have pledged, if you default on your loan. You can only sell the collateral if your lender has consented and you’ve paid the appropriate amount for its release. Otherwise, the lender can hold you and the buyer legally liable.

If you’re dealing with an unsecured loan, you shouldn’t have collateral, so you can sell any asset you own without telling your lender. In fact, unsecured loans have high default risk since their interest rates are higher than secured loans’. But personal loans from reputable lenders in Singapore often have flexible terms that can reduce your defaulting risks, whether it’s for a secure or unsecured loan. If you got your loan from a good company, you could avoid reaching the point of selling an asset just to pay them back.

3. Pay Late

Paying late is better than not paying at all. Exceeding your due date by a few days won’t get you in trouble immediately. As long as you can pay within 30 days, your loan won’t be defaulted. But don’t make late payments a habit because it would decrease your credit score. It would hurt your chances of getting another loan, despite avoiding a default.

4. Consolidate Your Debts

If taking those three steps isn’t helpful enough, you can get a debt consolidation loan. It transfers your current debts to another lender, who would give you a new loan term with a lower interest. This will extend your repayment period but make it a lot more manageable. But like any other loan, you’d also undergo an approval process before qualifying for debt consolidation. Start applying before missing your monthly payments. Lenders don’t want to approve someone who’s already behind.

5. Reduce Spending

Assuming you’ve already settled your debt, use your experience as a lesson to manage your finances better next time. The easiest way to do this is to reduce your expenses first. Once you’ve already weeded out your unnecessary expenses, look for ways to increase your income.

It’s important to control your spending habits before making more money. It will ensure that you won’t spend more just because you’re earning more. Learn how to budget appropriately first. Developing your financial discipline will allow you to never run out of resources, even during tough times.

Good financial habits will reflect on your credit reports. It would boost your credit score and make lenders trust you. They wouldn’t even realize that you almost defaulted. So even when all hope seems lost, focus on what you can still do, not the challenges. Just because you ran out of money for settling a debt means you can escape the obligation. You always have options.