If a loan becomes fully overdue, the borrower should first contact the lender to negotiate a payment plan or forbearance agreement. Prioritizing communication can prevent collections actions and avoid additional penalties. If no arrangement is possible, exploring debt consolidation or bankruptcy may be necessary, though these options have long-term financial impacts.

Proactive engagement with lenders is critical because immediate action reduces the risk of severe credit damage. The Consumer Financial Protection Bureau (CFPB) reports that 60% of lenders offer payment extensions or reduced interest rates to overdue borrowers, provided they request assistance. However, delays in addressing overdue loans can escalate consequences, such as wage garnishment or asset seizure, depending on the loan type. Data from the Federal Reserve (2023) shows that 35% of U.S. adults with overdue credit card debt face increased interest rates, averaging 24.7% annually. For mortgages, 90+ day delinquencies rose by 15% year-over-year in 2022, per the Mortgage Bankers Association, highlighting the importance of timely intervention. Bankruptcy, while a last resort, remains a legal right under Chapter 7 or 13 of the U.S. Bankruptcy Code, though it can reduce credit scores by 80-100 points and remain on reports for 7-10 years. Borrowers should weigh these options carefully, consulting a certified financial advisor or attorney to navigate complex regulations and avoid irreversible financial harm.