Can a loan company garnish my wages? If you have a loan that you are struggling to pay back, you may be wondering can a loan company garnish your wages. Some financial institutions that may garnish wages are credit card companies, personal loan lenders, payday lenders, and more!
Here, you will learn more about wage garnishment and how you may be able to prevent it. You will also find more information on what to do if you do find yourself in a situation where your wages are being garnished and how you can achieve the debt relief you deserve.
What Is a Wage Garnishment Order?
Wage garnishments are when a lender or financial institution takes money directly from a delinquent borrower’s bank account. The purpose of wage garnishment is for lenders or financial institutions to retrieve money owed to them.
Usually, if a lender has the right to garnish wages from a borrower, it will say so in their loan agreement. Before committing to a loan, borrowers have the opportunity to read and review their loan agreements. This means that borrowers can tell if a lender can garnish their wages before they even sign onto their loan.
If you are uncomfortable with the possibility of a wage garnishment, talk to your lender before you sign your loan agreement. They may be able to adjust your terms or give you some helpful tips on how you can avoid wage garnishment.
While wage garnishment is possible in most places throughout the United States, state laws prohibit wage garnishment in the following states:
- North Carolina.
- South Carolina.
When Can a Loan Company Garnish Your Federal Minimum Wage?
Sometimes, federal law limits the ability of financial institutions to garnish wages. However, a loan company may have the legal right to garnish wages if the borrower fails to repay their loan, even if they make federal minimum wage. Some unpaid consumer debt that may result in wage garnishment are:
- Federal student loans.
- Credit card debt from credit card companies.
- Medical bills or outstanding medical debt.
- Unpaid child support and alimony.
- Car loan.
- Fast payday loans.
Unfortunately, wage garnishment is not all that uncommon. For example, there has been a 40% increase in wage garnishments for federal student loans since 2006.
What Is the Difference Between Wage Garnishment and a Debt Collector?
Instead of a wage garnishment, lenders may opt to instead send unpaid consumer debt to a debt collector. Debt collectors are a type of organization that contacts delinquent borrowers and attempt to collect unpaid debts they owe. If lenders cannot garnish wages and attempts at working with a debt collector are unsuccessful, it may be time to consider filing for bankruptcy. Keep in mind that filing for bankruptcy may not protect you from wage garnishment if a court order has already is in place.
Filing for bankruptcy means that a consumer has formally acknowledged to lenders and financial institutions that they officially no longer have the monetary means to repay their debts or take care of their existing financial obligations.
When a consumer declares bankruptcy, their debts are often settled, and the consumer gets a fresh financial slate. However, claiming bankruptcy can significantly impact your credit score and other financial endeavors, so make sure you only declare bankruptcy as an absolute last resort.
Can Wage Garnishment Affect My Credit Score?
Having your wages garnished may not directly affect credit scores, but it can easily lead to other circumstances that can undoubtedly impact your score. Having bad credit can really hold people back in the financial world. For example with loans, many lenders base loan details like funding amounts, interest rates, and payback terms on their applicants’ credit reports.
When wages are garnished, this may leave you at risk of missing other due bills or payments. If you have automatic payments set up, wage garnishment may cause those payments not to go through or put your bank account in the negative. Being current and making your due bills and payments on time is crucial to maintaining a good credit score. So, if wage garnishment causes you to falter in your payment history, you may see a significant decline in your credit score on your following credit report.
Your debt-to-income ratio and credit utilization ratio are other credit determining factors that may waver because of wage garnishment. A debt-to-income ratio is the amount of money a person owes in various consumer debts compared to how much money they bring in on a regular basis. A credit utilization ratio refers to the amount of available credit a person has compared to how much they are currently using. For example, say you have a credit card with a $2,000 spending limit, and you currently have a $1,000 balance to pay back. In this circumstance, your credit utilization ratio would be 50%.
If your wages are being garnished, this most likely means you have accumulated more debt than you can handle.
For your reference, the main factors that determine a consumer’s credit score are:
- Payment history.
- Credit mix.
- Length of credit history.
- Various debts owed.
- Amount of hard credit inquiries.
What Should I Do if a Loan Company Garnishes My Wages?
If you find yourself in a situation where a loan company is garnishing your wages, there are a few things you can do. Do you believe you are having your wages garnished unfairly? If so, it may be in your best interest to seek out legal assistance. You may find out that there are wage garnishment exemptions you can take advantage of.
If not, and your wages are garnished legally, it is time to devise a debt management plan. Organizing your finances and creating a budget is essential to a successful debt repayment plan.
Can Payday Lender Garnish Wages for Unpaid Payday Loan Debt?
Yes, unfortunately, payday lenders may have the right to wage garnishment. The right to wage garnishment should be clearly laid out in the loan agreement for payday loans. Just like other loans, unpaid payday debt can lead to wage garnishment.
Payday loans are one of the most common types of unsecured debts that may lead to wage garnishment. This is due to the inconvenient terms and extremely high-interest rates that almost always come with payday loans. These loans don’t necessarily set up borrowers for financial success, leaving them at risk of defaulting on their loans and potentially garnishing their wages.
If you have not yet committed to a payday loan, you may want to find another way to get the money you need. For example, personal installment loans are usually a much more convenient option than payday loans.
How To Avoid Wage Garnishment
To keep your credit score and general financial situation in tip-top shape, you want to avoid wage garnishment. Below are a few tips you can utilize to stop lenders from garnishing your wages.
Pay Your Due Balance ASAP
To stop a lender or debt collector from garnishing your wages, it is important to become current on your debt payments as soon as possible. You can talk to your lender or credit counselor to come up with a debt payment plan that works for both of you. The sooner you pay back your lender, the sooner they can stop garnishing your wages!
Get a Debt Consolidation Loan
If you do not have the means to pay back your lender and stop them from garnishing your wages, getting a debt consolidation loan may be a good idea. A consolidation loan may help you pay off your other debts in one lump sum, so you only have to worry about one monthly payment instead of multiple.
One of the most versatile consolidation loan types is a personal installment loan. These types of personal loans can come with competitive rates and convenient terms. You may get a debt consolidation installment loan from a private lender, bank, or credit union.
Earn Some Extra Money
Perhaps you don’t want to take out another loan in order to stop wage garnishment. In that case, there are other ways you can acquire the quick cash you need. Some ways you may be able to get extra money to pay your debts are:
- Getting a temporary job or side hustle.
- Dipping into your savings account or emergency fund.
- Having a garage sale or selling unwanted items online.
- Ask a trusted friend or family member to loan you the money.
- Investing in real estate or acquiring another type of passive income.
- Starting a side business from the comfort of your own home.
Debt garnishment is a serious issue that must be dealt with immediately. The sooner you take care of wage garnishments, the quicker you can get your finances back on track!