One of the scariest times in your finances is when the time comes that you cannot make debt payments any longer. When this happens, you could begin to slide down your payment schedule and start receiving delinquent notices from your lenders reminding you to send your past due payments and be on time.
This is a lot more stressful when you have collateral on that debt obligation and your lender decides to exercise that lien on the asset. You can start to lose your house, your garden, or even your home if you are not careful. On top of this, your payments can start to balloon with all the interest and fees added on to your balance.
You need to remember that before you get to the point where you cannot make debt payments anymore, you will have a lot of warning signs that point to that stage in your finances. This gives you enough time to make the necessary corrections on your course and be able to avoid the trouble of catching up on your payments.
However, there will be instances when you miss out on all these signs completely and fall into the trap of unmanageable debt to the point that you cannot make the payments anymore. Washington Post even shares that a record 7 million Americans are 3 months behind their car payments. If you get to this point in your finances, there are a few things you can look into to help you navigate your way out of this delicate situation.
You are starting to feel overwhelmed by your financial obligations
If you feel that you cannot make debt payments anymore, there is still a chance that you are just feeling overwhelmed with every single payment you have to make. You could still have the ability to pay but just feel you are way too deep you cannot get out anymore. This is a good case scenario where a few tweaks on your budget could get you back on track.
Audit your debt payments
If you cannot make debt payments anymore, the first thing you need to do is face the problem head-on. Throwing away unopened statements will not make it go away. In fact, it only puts you in danger of identity theft when thieves get a hold of those statements. They contain personal information which can be used to open up lines of credit under your name which will further complicate your situation.
Make time so you can go through and audit your debt obligations that have accrued over time. Much like how you would put together a comprehensive budget, you need to go through your financial obligations to help you understand your situation fully. As you do this, it will allow you to put together a plan to get out of it.
You cannot make a plan if you do not have an idea of what you need to fix. There are a lot of important details you need on hand such as lenders and how much you owe them exactly. It is also a good idea to look at the interest rates and fees to determine who you pay off first when you have limited income to go by. Having important information allows you the ability to make informed financial decisions as you go along.
Separate fixed from variable payment obligations
As you start to look at your expenses a little more carefully, you would come to a realization that there are fixed and variable costs in your list. There are areas in there that you have little control over and parts of the list where you can make the most difference and you need to concentrate on that area of your expenses first.
One good example of this is your discretionary fund which you normally use for fun and recreation. You can choose to lower that amount in times when you cannot make debt payments already. Rather than watching a movie outside, you can stay at home and stream movies online. You can even make your own popcorn and drinks.
Tighten your rein on what you can control
While focusing on areas in your expenses you can control the most, make sure that if you do, you do not add any more additional debt. You could be lowering down your entertainment expense but going shopping online and using your card to pay for it. At the end of the month, you get more credit card statements for items you may not really need.
If you cannot make debt payments on some areas in your finances, try not adding more payments you have to make. Do not make the situation a lot harder than it already is. Guard your credit so you do not impulsively charge an expense on it because you feel vulnerable. Keep your eyes on your goal of getting back on track and meeting all your financial obligations.
Find a way to lower down your big payments
It is a lot more challenging when you cannot make debt payments on big-ticket items like your mortgage loan. It makes it a lot more stressful because once you become delinquent on your home payment, you could lose your house. You could be back renting a place or even moving back in with your parents in your old room.
One thing you can do is talk to your lenders and be honest with your situation. They could be able to help you by exploring options you can take. One is refinancing your loan where the goal is to have a smaller monthly payment for your mortgage. It could end up being more expensive down the road but you get to keep your house. You can also look at debt consolidation for other debt payments you have with the same goal in mind.
Improve your credit score
One of the ways to help you prevent instances where you cannot make debt payments anymore is to improve your credit score. While your payments are still manageable, make it a point to pay earlier than the due date. If you have a lot of credit card debt, make sure that you pay the entire amount due at the end of each month.
As you do this, your credit score will improve and be a sign for the future and even existing lenders that you take your finances seriously. This means that when you borrow money for any reason, you are a low-risk client and therefore, can be afforded some benefits. This can include pre-approval on loan applications and even being given a low-interest rate.
A low-interest rate can mean the difference between having the ability to make that full payment or being left to pay only the minimum amount. This will not only result in higher monthly payments with the penalties and interest but bring you closer to the possibility of being unable to meet your payments in the future.
It is possible that you cannot make debt payments in the future but you need to know that there is a way to get out of that situation.