You've been doing all the right things to manage your finances. You took the time to put together a budget and stick to it. You're careful with your money and you always pay your bills on time. But your financial situation has changed unexpectedly and you're finding it nearly impossible to make it week to week. What steps should you take if you can?t make payments on your debts?
- Don't put off dealing with the problem. Skipping payments will seriously damage your credit rating and, in the case of mortgages and home equity loans or loans backed by your vehicle, can put you at risk of losing your home or car. If you lose your job, get injured or fall ill, or have large unexpected expenses and find yourself unable to pay your loan or credit cards bills, call your lenders right away to alert them to the situation. Explain what's happened and let them know that you do plan to continue to make payments as soon as you're able. The same goes for utility, insurance, and medical bills.
- Ask to set up a payment plan. Many lenders are willing to accept lower payments for a while or set up a special payment plan if you have been paying your bills on time, so talk with all your lenders to see if this is an option. You can also see if you can renegotiate your loan to lower payments. For example, you might be able to extend the term of your loan, which will make your monthly payments smaller. Keep in mind, however, that you will end up paying more interest on the loan over the long term.
- Get help to manage your debt. If you don't feel confident putting together your own plan to pay off your debt and get back on track financially, consider working with a certified, non-profit credit counseling agency. A reliable agency can help you work with your creditors to pay off your debt and plan a budget to avoid future financial problems. Be wary of agencies that charge a high fee for their services and check with the Better Business Bureau to find out if there have been any complaints against the agency before deciding to work with them.
- If it sounds too good to be true, it probably is. You've seen ads for firms that claim they can settle your $3,000 credit card bill for pennies on the dollar or can repair your credit to improve your credit score. According to the Federal Trade Commission, most of these claims are scams, which can damage your credit rating and create more debt.
As the economy continues to struggle, more and more people are facing a sudden change in their financial situation. If you're affected by money problems that make it hard to keep up with your bills, the best plan is to take a proactive approach. That way you can manage your debt wisely and protect your good credit.