When You Miss Payments on Major Expenses

(3 of 7)

When You Miss Payments on Major Expenses

What should you do if you are about to miss payments on a large debt, such as a home? The last thing you should do is stay silent and hope it just magically works itself out, because it won’t.

Your home

If you have a mortgage, your lender will begin foreclosure once you have missed a certain number of payments. Typically, this is four or five, though it varies by state, and it can vary by lender. But your lender would rather keep you as a customer than go through the expenses and losses of foreclosure. Therefore, your lender will usually work with you through this period. It may allow you to pay only the interest for a certain period, it may reduce your monthly payments, or it may suspend a few payments and tack them onto the loan elsewhere. In some cases, it may rewrite the loan. Contact your lender as soon as you are sure you will miss payments.

There are some alternatives worth considering, depending on how bad your debt situation is:

• Try to sell the house. You can reduce further damage to your credit and even earn enough to pay off your debts.
• Look into the federal programs that help people in foreclosure.

Your car

Does every ride in your car feel like it might be the last because you won’t be able to make payments on your car loan? If this is the case, don’t hide in fear. Contact your creditor and explain your situation. It doesn’t want to lose you as a customer and repossess a car that it knows it will have to sell for less. But it will repossess the car if you do not act. Your creditor may be willing to modify your loan or suspend a few payments and add them to the end of the loan. This is better for you than if it repossessed the car, because in that situation, in order to get it back you must pay off repossession costs and the missed payments (or, in some cases, the entire loan balance).

On the other hand, it may make more sense to surrender the car before the creditor can repossess it. This can save you various costs associated with repossession. In some cases, it can save you the balance on the loan. Yet another option is to try selling the car yourself to pay off the loan.

Bottom line: contact the creditor and learn what your options are.

Utilities

If you think you will not be able to afford your utility bills during periods of peak use, you might be able to opt for averaging them out over the year. This means paying a set rate that is less during peak use and more during sparse use.

Many cities prevent utilities from shutting off electricity or gas during winter months.

Are you low income or otherwise economically disadvantaged? You may qualify for reduced rates. Contact your utility company to see what it can offer you.

Personal loans or credit cards

If you are about to miss payments on either of these, it is important to remember that your creditors are likely to work with you to avoid the hassles, expenses, and lost revenue of default. This means that you have the opportunity to negotiate. Contact the person in charge of the type of loan you have and explain your situation. You may receive a lowered monthly payment, permission to skip a few payments, or perhaps even a reduction in your interest rate. Bear in mind, though, that you might suffer a freeze on any further credit.