Whether it’s an auto loan, mortgage, credit card debt, personal or student loan, when we don’t make payments on the money we’ve borrowed, we default on our loan. How quickly a lender deems you as a default will depend on the type of loan, the terms, your creditor and any applicable state or federal laws. But for context, a loan can be defaulted on immediately after the first missed payment, or it may not take places until several months later.

People that default either don’t have the money or get careless with their payment date. In other cases, they may never have received a payment date notice. In all scenarios, a loan default still occurs as long as the debt is not being repaid, and it happens a lot.

Per CNBC, 22 percent of borrowers, or more than one million people each year, fall into default, a share of the population that’s to reach 40 percent by 2023. As far as the over-$500-billion auto loan industry goes, over 4 percent of active accounts were delinquent after 90 days at the end of 2017. And according to the Federal Reserve Bank of St. Louis, 2.53 percent of commercial bank credit cards were in default at the end of Q3 2017.

Consequences of Defaulting on a Loan
Like the real world, actions speak louder than words, which is why our reputation takes a big hit when we don’t do what we say we will. The specific consequences of defaulting depend on your type of loan and circumstances surrounding your default.

However, you could be liable to pay your remaining debt right away, it could be sent to the lender’s collection department, or it can be sold to a persistent third-party collection’s agency. If a creditor wants to take out a judgment against you, your wages could even be garnished. And when you default on loans that have secured collateral to them, aka secured loans, defaulting means you lose that asset.

How to Avoid Defaulting on a Loan
How to avoid defaulting on a loan depends entirely on the type of loan and a debtor’s situation. The easiest and most significant action you can take is reaching out to creditors and explaining your situation before you’re at risk of missing a payment. They’ll appreciate the concern and be more likely to work with you on an alternative solution, whether that’s a payment grace period, reduced interest rate or new payment terms. Be sure to get whatever you and a creditor agree on in writing. The burden is on you to prove the new terms of the contract if something were to get misinterpreted along the way.

If you’re trying to avoid defaulting on your student loans, you can get student deferment for up to three years if you qualify for economic hardship or encounter employment issues. If you fail to qualify for a deferment, requesting forbearance can postpone payments for up to 12 months if a lender deems you worthy of financial hardship, medical expenses or general forbearance.

What to Do If You’re Already Behind on Payments
If you’ve been receiving collection mail and creditor calls because of overdue payments, your number of options has dwindled. But all is not lost. The longer you default, the worse your credit will suffer. This is why some debtors declare bankruptcy. In other cases, if payments are already far overdue, settling debts might prove to be a successful strategy. Debts can always be negotiated by debtors. However, depending on the type and amount of debt, working with a debt settlement company may be more efficient. Providers like Freedom Debt Relief and CuraDebt both have proven histories of substantially resolving large debt totals. Keep in mind that debt settlement companies charge a fee based on the amount of debt they’re able to eliminate, assuming you agree to pay the reduced total.

The best way to avoid defaulting on loans is of course to never take out the loan in the first place. But that’s not realistic. If you find yourself getting into hot water, understand the terms of your loan, communicate with your creditors, explore possible deferment options and most of all, recognize when you’re in too deep. The road to financial recovery starts now.