What will you do if you can no longer pay off debts? It’s not an uncommon situation. One moment you are financially secure. The next thing you know, you are struggling to make ends meet. If you have a lot of debts, it is actually a terrifying position to be in.
If you look at what is happening around us, it is not far off that people will be failing to pay off their multiple debts. In fact, one report revealed that the $950 billion mortgage debt of Americans will risk delinquency in the aftermath of the coronavirus pandemic.
The COVID-19 pandemic has triggered lockdowns that are clearly tipping the world into a global recession. If you think that things are bad, well it has not yet started. That is such a pessimistic thing to say. But that is reality.
The good news is, we go through this all the time. We have recessions happening every few years or every other decade. And every time it happens, we always bounce back.
While the government will have a hand in how well we bounce back, that does not mean you cannot do anything. The truth is, our collective effort will help the country get back on its feet. If what the experts said is true, this recession will be as devastating as the Great Depression back in 1929. So what you can do is to focus on your own finances. Because if we work together to keep our personal finances strong, that can help the national economy recover.
The question is, how can you help? Simple, you need to pay off debts.
Tips when you can’t pay off debts
Of course, wanting to pay off your multiple credit accounts and actually doing it are two different matters. Especially if the recession has compromised your finances. What can you do if you suddenly cannot afford to pay off debts anymore?
Here are some of the things that you can do.
Try to consolidate through a loan
Debt consolidation is one of the best debt solutions that you can use. This is really effective if you have a lot of high-interest debts – like credit cards. If you have a good credit score, that will make you qualified to get a low-interest rate on your loan. You will then use this loan to pay for your consolidated high-interest rate credit card balance. You should be able to save money on interest. Not only that, but the process of consolidation will also allow you to restructure your payments. If you cannot afford to pay off debts, you can opt for a low monthly repayment plan. That will make it easier for you to meet your payments.
Opt for secured loans
This is another way to consolidate your debt is through secured loans. These are loans that will require you to put up collateral. This collateral is something that you own. It will be used as the guarantee that you will pay what you owe. In case you cannot pay your loan, the lender will get this collateral as payment. This is the reason why a secured loan has a lower interest rate. And since you are basically opening a new loan, you can make the monthly payment as low as you can afford.
Negotiate with lenders
If you find yourself suddenly unable to pay off debts, you might want to talk to your creditors and lenders to work something out. It might make you feel intimidated but this can be really helpful. You just have to know your rights so you know what you can ask of them. Being upfront with the lender about your financial situation will make them appreciate you more. It shows that you are responsible enough with your debt payments. You might be surprised to find them willing to work with you as long as it guarantees that you will keep paying your debts.
File for financial hardship
When you talk to your creditors and lenders, ask them about the possibility of filing for financial hardship. You will need to prove this by showing documents that indicate either a job loss, significant cuts in monthly salary, medical illness that keeps you from working, divorce or death of a spouse, etc.
If they approve of your financial hardship state, they will allow you to make smaller payments on what you owe. They can even reduce your interest rate and waive penalty charges and other fees. Just be honest about your situation. Also, make sure that if you will propose a monthly payment plan, it is an amount that you can afford.
Choose your priorities
If you ‘ve done any of the previous tips mentioned but it’s still not enough, you might want to rank your debt payments. Choose which of these will be prioritized. If you have secured loans, you may want to prioritize these. If you cannot pay, you might end up losing the collateral for that loan. After the secured loan, you should look at the interest rates of the debts you owe – excluding credit cards. The highest rates should be prioritized because it will save you money if you pay off the high-interest debts first. Put your credit card debts last because usually, these are the easiest to negotiate.
Benefits of paying off debt
Some people might just think of ignoring their credit obligations just because they can’t afford to pay off debts anymore. Being in financial hardship does not exempt you from paying your dues. You have to be responsible enough to work on it.
If you need the motivation to do this, here are three benefits that you will enjoy if you pay off all your debts completely.
Debt is a liability. No matter how much assets you accumulate over time, your debts will always bring that down. Not to mention the payments you make towards your debts will be missed out opportunities to improve your finances. But if you pay off debts, anything you earn from now on will just be an addition. None will be used to pay for a liability. It will be easier for you to improve your financial position and work on reaching your goals.
Another benefit of paying off your debts is having less stress. You don’t have to worry about your payments anymore. If something happens to your income, you only have to focus on spending for your basic necessities. There is no need to pay for any debts. It would be easier to stretch your funds to last longer. You don’t have to spend sleepless nights thinking about the penalties that you will get because you failed to pay off your debts.
Finally, if you pay off debts, you have the freedom to live the life you want. According to reports, 49% of Americans have accepted the fact that they will be living from paycheck to paycheck. That means their income is just enough to cover their financial obligations. If you can remove your debts from your monthly expenses, that will really leave room in your budget for expenses that you want to spend on. Your monthly budget will not feel too restricted. You can freely work on improving your finances and taking it to the next level.