Many consumers find themselves, especially in difficult economic times, faced with the option of eliminating debt or allowing a property to go into foreclosure. While each option holds its own distinct benefits and considerations, and such a decision can have far-reaching consequences, a consumer should carefully evaluate all factors before committing to a major financial decision.
Options
When faced with mounting debt, consumers may choose to either extinguish the debt using a variety of methods or allow a debt-burdened property to go into foreclosure. Extinguishing debt typically equates to paying off outstanding loans, though some consumers may choose to explore this option by seeking bankruptcy protection. Alternatively, a debtor may allow a lender to foreclose on a property, possibly removing that debt and leaving more funds to pay down other obligations.
Property
Allowing a property to fall into foreclosure, of course, almost certainly leads to a loss of that property, and some consumers with strong attachments to the property may want to avoid this option. According to financial advisers at DebtWorkout.com, extinguishing debt allows the debtor to keep most or all personal property and real estate. In addition, some bankruptcy cases include provisions that allow a debtor to retain real estate, though this privilege often means the debtor must keep making regular payments on the property.
Lifestyle Changes
Foreclosure and paying off debt can mean considerable lifestyle changes for a heavily burdened debtor. Foreclosure almost certainly results in the loss of some real estate, though the impact of this loss can be somewhat softer for debtors who can quickly arrange alternative living arrangements. In addition, according to the Consumer Finance Report, some states allow debtors to remain in foreclosed homes for several months, and the debtor can use this time to seek other places to live. In comparison, eliminating debt can mean a significant lifestyle change for a considerable length of time. Paying off debt may mean cutting back on many non-essential expenses for several years for many debtors, a long-term sacrifice that may make some debtors uncomfortable. Finally, according to Consumer Finance Report, extinguishing debt through bankruptcy can lead to the loss of a significant amount of personal property, court-ordered periodic debt payments or a combination thereof.
Future Credit Opportunities
Foreclosure and bankruptcy can have a significant impact on a debtor's credit rating, and the resulting credit rating decrease likely will lead to fewer and more expensive debt options as long as the negative items remain on the credit report. According to Consumer Finance Report, foreclosure and bankruptcy can reduce a credit score by up to 300 points. Paying off debt, though, can have the opposite effect of raising the credit score and lead to increased credit opportunities.
Negotiations
Consumers facing foreclosure or the prospect of debt elimination may benefit from negotiations with creditors. According to consumer debt specialists at ClearDebtNow.com, some creditors will work with financially strapped borrowers to achieve a more attainable repayment plan. In addition, according to DebtWorkout.com, lenders have an arsenal of options for avoiding foreclosure; some options might include a modified repayment plan, a short sale agreement or a deed in lieu of foreclosure, though these options vary by lender.
0 comments:
Post a Comment