Expert View: Where to Start When Dealing with Your Failed Loan(s)

Jaano Poomre, the head of Bigbank's credit management and court and enforcement proceedings department, has extensive experience showing that most people don't get into trouble because of bad decisions, but rather due to a lack of knowledge and experience in financial management and fears that often lead to using the "ostrich tactic" – burying one's head in the sand in the hope that the situation will somehow resolve itself.

The experienced expert shares seven recommendations that a person struggling with their loan(s) should primarily follow when starting to solve their financial problems. It is equally important to pay attention to these aspects for all those who today have no outstanding debt yet, but whose financial affairs are already at the limit.

1. Silence is the most expensive mistake If a person runs into payment difficulties, the worst decision is not to respond to contact attempts from the bank (or any other creditor). In practice, it can be seen that early communication with the lender provides significantly more and more flexible options for resolving the situation (changing the schedule, payment breaks, etc.). The lender always wants to find a solution if the debtor communicates constructively.

2. Refinancing is not a "last straw" It is often thought that refinancing existing loan(s) means a problem, but actually it is simply a tool. When used at the right time, it can reduce monthly payments, which on one hand helps stabilize your financial situation and on the other hand helps you find the best interest rate offer for your entire debt.

3. Payment default is not the end

Payment default means that the problem has become official. However, it is important to know that even here it is possible to resolve the situation and restore your creditworthiness. In addition, it is actually also beneficial for the debtor. Too often, a person caught in the debt trap tries to pay off previous loan installments through new loans, and then getting listed in the payment default register blocks the possibility of getting into an even worse situation.

4. Small obligations are the most dangerous It is precisely smaller installment purchases and quick loans that tend to pile up. People underestimate their impact, but together they can constitute a greater monthly payment burden than a single large loan. The marketing of many products is built so that a very attractive item is offered "for just" 30 euros a month. And people tend to overconsume, and at some point they have ten such small obligations in a row.

5. An expense overview is an underrated tool Many people don't actually know where their money "disappears" to each month. Simple expense mapping (even based on the last 2–3 months of bank statements) often gives a quick answer to where it's possible to save. Often, an initial 50–200 euros per month is found this way, which can be redirected to reducing loan burden.

6. Additional income is a faster solution than cutting expenses There is a limit to reducing expenses, but there is no limit to income. Temporary additional income (side work, project-based work) can provide the quickest relief and help you get through a critical period.