Realizing that you do not have the money to pay your bills can be frightening. Whether you have lost your job, or find yourself with interest rates that have resulted in huge minimum payments, your mountains of bills may make you consider not paying your debts at all. Before you abandon your debt, beware---when you stop paying your creditors, the result is ruined credit at best, and lawsuits and lost property at worst.
Plummeting Credit Scores
When you stop making payments on your debts, you're telling creditors that you can't be trusted, and they in turn report your actions to the credit bureaus, which dock your credit score for every missed payment, charged-off debt and debt reported to collection bureaus.
Loss of Your Home
If there's one debt you want to pay, it's your house payment. Whether you lease, rent or own your home, not paying your housing costs can put you out on the street. In most states, landlords can begin the eviction process after you have missed one lease or rental payment. You may have as little as 30 days to find an new home, and good luck doing so with a bad credit score or a detrimental reference from your former landlord.
If you have a mortgage on your home or any loan that is secured by your home, it may take longer to feel the effects of missed payments, but foreclosure proceedings can begin after one missed payment. While mortgage lenders typically wait 90 to 120 days before beginning the foreclosure process, it will happen if you do not make payments.
Loss of Your Car
When it comes to making your car payment, it's even more imperative to make payments on time, because the grace period for missed payments is even shorter than that for your home. If your car is repossessed, you may be required to pay the amount in arrears, or, in the worst case scenario, the entire amount of the loan before you can get your car back, if getting it back is even possible.
Legal Trouble
The creditors you owe for unsecured debt such as credit cards, student loans and medical bills have no assets such as a home or car to repossess for repayment, so they often result to the legal system to get you to pay, taking you to court to obtain a judgment against you that can result in garnishment of your wages. This can take six months or even a year to happen, with your accounts being turned over to collection agencies first.
Alternatives
Before you stop paying your debts completely, call your creditors to ask about any hardship programs they may offer than can reduce your payments, stop interest from accruing, or remove fees and penalties. While these programs are usually not permanent, they can give you breathing room to pay down some of your debt. If you have multiple creditors, or are just overwhelmed by the prospect of dealing with creditors, contact a credit counseling agency who can work with you and your creditors to create a debt management plan that can help you to reduce payments for a period of years.
Your last resort should be filing bankruptcy, which will not only destroy your credit, but can result in the loss of your home, car or other property. However, if you simply do not have the financial means to repay your debt, filing bankruptcy may be your only option.
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