A payment deferral is an agreement with a creditor that lets you pause or reduce your debt payments for a limited time. It may be worth pursuing when you’re struggling with a temporary hardship such as job loss, illness, or reduced income.
This guide will explore what it means to defer payment in more detail to help you determine if it makes sense for you.
What Does “Defer Payment” Mean?
To “defer payment” means to make an arrangement with your lender that allows you to temporarily pause your regular debt payments. As long as the agreement lasts, missing payments won’t trigger late fees or damage your credit.
However, once the deferral period ends, you’ll need to repay the postponed amount, either by extending your loan term or by increasing future payments. In other words, payment deferral can give you time to recover, but it isn’t permanent debt relief.
How Deferred Payments Work
Payment deferral works differently depending on the type of debt involved. Here’s how the process goes for some of the most common credit accounts:
- Mortgages: Homeowners with federally backed loans can sometimes defer payments by moving the missed amount to the end of the loan. You resume your regular monthly payments and pay the delayed balance when you sell or refinance your home.
- Student loans: Student loan deferment stops required payments for a limited time. Whether or not interest accrues during this period depends on the type of loan, with subsidized federal loans typically receiving the most favorable treatment.
- Credit cards and personal loans: Some lenders offer hardship programs that pause or reduce payments for a few months. These can help you avoid late fees or negative credit reporting, but interest often keeps growing during the break.
Across all types of debt, deferring payment means postponing what you owe, not removing it.
The Hidden Cost of Deferring a Payment
A payment deferral can give you short-term relief, but it often raises the total amount you pay in the end. In many cases, interest continues to run while payments are paused. When you resume, you may owe more overall or need to make payments for a longer time.
For example, student loan borrowers may see interest added to their principal once payments restart. Mortgage borrowers might have missed interest and principal moved to the end of the loan. Credit card users may find their balance has grown because of compounding interest.
Always ask for the full terms in writing before agreeing to a deferral.
When Deferring Payments Can Help
Deferring payments makes the most sense when your financial difficulties are temporary and you expect your income to recover soon. For example, it may be helpful when:
- You can afford your normal payments when your situation improves.
- You have a clear plan for catching up once the deferral ends.
- The terms are documented, and you understand how repayment works.
In such cases, a deferral may help you stay current and protect your credit while you stabilize your finances.
When Deferral Becomes a Warning Sign
If you find yourself asking for payment deferrals repeatedly, your debt load is probably too significant for your income, and it may be time to look into your finances more deeply. Otherwise, you’ll only be delaying an increasingly large problem.
Consider speaking with a credit counselor or a financial professional for assistance. They can help you gain clarity and create a long-term plan to stabilize your finances.
Bottom Line
Payment deferral can be helpful when you encounter temporary financial hardship, giving you time to recover without triggering late payment fees or damaging your credit. However, it doesn’t erase your debt, and interest may continue accrue while your payments are paused. As a result, deferment is only a temporary stopgap, not a long-term solution.
The content provided is intended for informational purposes only. Estimates or statements contained within may be based on prior results or from third parties. The views expressed in these materials are those of the author and may not reflect the view of SmartSpending. We make no guarantees that the information contained on this site will be accurate or applicable and results may vary depending on individual situations. Contact a financial and/or tax professional regarding your specific financial and tax situation. Please visit our terms of service for full terms governing the use this site.