In this Thursday, Nov. 27, 2014, photo, a woman pays for merchandise at a Kohl's department store in Sherwood, Ark. Relying on credit for holiday shopping without a plan to pay off the debt quickly can easily cost you more in the long run. (AP Photo/Danny Johnston)
In this Thursday, Nov. 27, 2014, photo, a woman pays for merchandise at a Kohl’s department store in Sherwood, Ark. (AP Photo/Danny Johnston)

(CBS News) – Americans increasingly are falling behind on their auto and student loans, new figures from the Federal Reserve Bank of New York show (see chart at bottom). If you’re struggling to pay your bills, here’s how you can contain the potential damage to your finances.

Contact your lenders. You may qualify for a loan modification or a temporary reduction in your payments. Federal student loan debt is particularly flexible, offering a number of repayment options. Those include a “Pay as You Earn” plan that can reduce your required payment to zero if your income is low. Auto lenders may let you skip a payment or even refinance your debt, depending on your credit scores and the lenders’ policies. People resist calling their lenders, “but that’s the wrong response,” said Phil Reed, senior consumer advice editor for car site “They really don’t want you to default… they really are trying to keep you in the game.”

Understand the consequences. Even one skipped loan or credit card payment can devastate your credit scores, but how lenders report and react to delinquencies varies considerably. With an auto loan, for example, the lender can repossess your car if you’re a single day late with a payment, although most wait until you’re 30 days or more to start the collections process. Delinquencies on federal student loans, by contrast, typically aren’t reported to the credit bureaus until you’re 90 days overdue, and you’re not considered in default until you’re 270 days late. Even then, you have options to “rehabilitate” your loans and erase some of the credit history damage. Private student lenders aren’t as forgiving — many report delinquencies after 30 days and start collections soon after. Credit card issuers differ in how they react to delinquent debt, but after six months most send the debt to collectors.


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