In Part One we talked about which debts should be paid first, and the concepts of secured debt, which should be paid before unsecured debt.
While it is important to focus on paying your commitments to your secured debtors, remember is essential to continue to pay all your debts. There are serious consequences for not paying your bills. Defaulting on any bills, even if you are meeting the minimum payments on other your debts to secured creditors, could lead to a creditor bringing an action of bankruptcy against you.
Therefore if your situation is getting extremely tough, consider not only the type of debt you have, but these ten factors also:
- What is your total amount of debt?
- What will be the consequence of not paying the debt? For example, failing to pay your mortgage or rent will mean nowhere to live.
- How much you owe to each creditor.
- What are the value of your assets?
- What interest rate applies to each debt? Which debts have the highest interest rates?
- Are there any legal consequences of not paying a particular debt? For example, do you have a court fines, or has a creditor threatened bankruptcy?
- Has your income been permanently reduced?
- What is the importance of each debt relative to your other debts?
- Will you be able to budget or reduce spending to help reduce your debt?
- Do you have any unavoidable upcoming expenses?
It takes a lot of work to keep managing to pay everyday bills, plus keeping on top of all outstanding debt payments. If you find that you are unable to do this, your first port of call always the company you owe money to. Rather than let the situation get out of hand, it is important to contact the company and tell them about your situation. Also make clear you are committed to paying your debt back, however you need more time. You can ask them to consider lowering the payment amount or the interest rate, or allow you to skip a couple of payments (with the interest rate remaining charged). Make sure every time you talk to a creditor you make written notes, including the time, day and who you spoke to.
If you continue to struggle with your debts, consider seeking a settlement with smaller creditors. Call and ask them to accept a lesser amount in full settlement of the debt that you owe them, however note that this will require you to have that amount available to pay them. And again, make sure every time you talk to a creditor you make written notes, including the time, day and who you spoke to.
Failing to meet your debt payments can affect your credit rating, and your future ability to lend money, or even obtain a mobile phone plan. Rather than let that happen, be proactive and contact the bank or company you owe money to and ask to enter into a payment plan. You will be surprised at how helpful a lender will be if you show a genuine interest at repaying your debt.
Failing to take action will lead to you obtaining a bad credit rating, and this will have a long-term effect on your financial abilities.