Individuals facing financial struggles such as unemployment, disability or medical problems may find it difficult or impossible to come up with the cash to pay their bills. Creditors have set consequences for individuals unable to pay their bills. Specifically, if you are unable to pay your bills, it can have lasting ramifications on your finances, regardless of the reason you cannot make payments.
Function
After you do not pay a bill, many companies will quickly start the "collections process," in which they attempt to recover the money you owe them. Some creditors take immediate action against non-paying consumers: auto loan companies will often repossess vehicles for one-day-overdue payments, while landlords will often evict tenants a few days or weeks after the rent is past due In contrast, credit card companies typically wait four months before automatically closing cards, charging them off and sending them to collections. Mortgage lenders have the longest collection processes, typically waiting months before foreclosing on borrowers' homes.
Credit Consequences
In addition to losing your home, car and/or credit cards, missing bill payments can damage your credit score, the three-digit number a lender uses to decide if you are eligible for a loan. Car repossession and late credit card or mortgage payments all go on your credit report and damage your payment history, which is the most important aspect of the credit scoring formula. Additionally, late payments, foreclosures and repossessions do long-term financial damage, remaining on your credit report for seven years.
Strategies
If you do not have the money to pay all your bills, the worst thing you can do is to ignore the problem. A June 2009 article from "Main Street," a consumer finance website, recommends prioritizing your bill payments according to basic needs and credit impact, and using your money to pay the most important bills. Keeping a roof over your head is of the utmost importance, so pay your rent or mortgage first, as well as utilities such as gas and electricity. Transportation, especially for work purposes, is also key, so car payments should also be a high priority.
Considerations
If your income situation is unlikely to improve any time in the near future, one option you can consider is filing for bankruptcy. Filing for Chapter 7 bankruptcy will give you a "discharge," or release, from most of your debts, selling your nonessential property to pay your creditors, while Chapter 13 bankruptcy allows you to reorganize your debt and pay what you owe over three to five years. Although filing for bankruptcy seems like a good way to escape debt, it will trash your credit score and remain on your credit report for seven to 10 years, greatly reducing your chances of getting credit, employment or rental property in the future.
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