When You Can’t Pay Your Debts: Some Things to Keep in Mind

pay your debts

Are you currently facing the possibility of being unable to pay your debts? A lot of other people have been in your situation: some were able to survive the storm, while others simply needed guidance in order to get through what they had been. If you think you’ll be unable to pay your debts soon, keep these things in mind.

Not all debts are the same

Different debts have different consequences. Unsecured debts are probably the heaviest debts to carry because they grow rapidly compared to other types of debt. Secured debts, on the other hand, will make you lose your properties if you don’t pay your creditors. Student loans and unpaid taxes are probably the worst because these types of debt just don’t die, and the government can even chase you and put you behind bars.

Come to think of it. If you have credit card debts, they’re not that bad after all. Credit card debts can be eliminated with bankruptcy, they can be negotiated by debt settlement companies, and there are strategies on paying them off. A lot of people have actually gotten out of debt through their own efforts or through the help of debt relief agencies.

Don’t ignore secured debts

You had put your property as a guarantee for your loan, so you should not take secured debts lightly. In fact, secured debts must be given more attention than unsecured debts. Unsecured debts are forgiven by lenders day in and day out — every day, an unsecured debt is being negotiated between creditors and debt settlement companies. On the other hand, it will be a very painful thing to lose an investment such as a house to a loan that you had missed paying. Be extra careful about secured debts and think twice before putting something as collateral.

Try talking to your creditors

When you think you can no longer pay your debts, it is good to talk to your creditors about your situation. Some of them might just be willing to work on a repayment plan with you or allow you to skip a few months of payment, and avoid going for aggressive collection calls. Of course, you need to be honest when talking to your creditors about your financial situation, because more or less, they are going investigate and find out, anyway.

If your lenders are not open to any of your negotiation, it might be time to go for other alternative solutions.

Debt collectors have limits on what they can say and do

Being the indebted party does not give debt collectors any right abuse you by hurling obscene language at you over the phone, or by playing dirty tricks and lies just to collect the money you owe.

Always remember that you have rights as a consumer and they are codified in the Fair Debt Collection Practices Act. Make sure that you are familiar with the limits of debt collection so that you will not be a victim of debt collection abuses. Armed with the knowledge of fair debt collection, you can defend yourself and even turn the tables on your favor against your debt collectors.

Consider debt consolidation loans

If you still have an income and are still able to qualify for loans, you might want to try shopping around for debt consolidation loans, but you also have to consider the pros and cons behind these types of loans.
Debt consolidation loans often have lower interest rates than your average unsecured loan’s rates. However, to make it work, you need to find a lender that will offer you a loan that’s big enough to cover your total debt. Likewise, debt consolidation loans are typically secured loans so as a standard protocol, creditors would ask for a loan collateral, just in case you fail to pay.

In this case, your unsecured loan now becomes a secured loan, which might be a risky proposition especially if you are still not sure how you are going to pay the monthly amortization. Again, you could lose the roof above your head if your slip up.

Credit counseling may help

But credit counseling won’t do much to help you. Credit counselors can help you create a budget and a debt management plan to guide you in paying off your debt. However, these things nowadays can be self-taught. You can immerse yourself in blogs, YouTube videos, and articles about finance, and learn things on your own and avoid hefty credit counseling fees. After all, change in your financial life begins in you…a credit counselor may be able to draft a debt management plan but nothing beats an intrinsic desire to change yourself. It’s more powerful and it doesn’t cost money.

Think twice before filing for bankruptcy

Some people make bankruptcy the go-to solution when they feel that they are already in debt trouble. Filing for bankruptcy once might be understandable in worst-case scenarios, but filing twice is a sign of indolence…that you always want an easy way out. Have you tried proper budgeting, building an emergency fund, or investing in IRA? While bankruptcy does help individuals who no longer have means to pay a debt, it should be used sparingly, or as a last option when all the other solutions have been exhausted.

Debt settlement may help – but be wary of fraudsters

Debt settlement companies’ business is to help individuals get out of debt within a certain time frame (24-36 months, for example). It is an aggressive solution to unsecured debt problems and has worked for many individuals and families, especially at the time when the effects of 2008 financial crisis started to sink in. Lots of debt settlement companies have sprouted in different States in the U.S., promising to negotiate debts for less than you owe. However, opportunists had taken advantage and scammed people shamelessly by collecting outrageous fees for no work done at all.

Be careful. Avoid fraudsters if you really want to go into debt settlement. Look for companies that are already established, transparent to the public, and have had several successful stories of clients who had gotten out of debt with their help.

When you are in debt trouble, the worst thing you can do is panic like it’s a stage 4 cancer. Instead, remind yourself that it’s not the end of the world, and that there are solutions to your debt problem…if you know where to look.