There are two types of debt: secured bets and unsecured debts. Unsecured debts require no collateral to secure. The best example of an unsecured debt would be credit cards, which only require an application to be filled out. If you fail to pay off credit card debt, lenders will hold the debt against you but they will not threaten to take anything away from you.
Secured debts, on the other hand, require you to put forth collateral, usually in the form of an asset such as a house or car. Debt from a mortgage is backed by your actual house and can be repossessed. Likewise, an auto loan is backed by your vehicle which can also be taken away from you for missing payments. Mortgages and auto loans are the most common secured debts that people face.
The Seriousness of Secured Debts
Secured debts like these are a much bigger deal than unsecured debts. There is more at stake in a mortgage than there is in owing on your credit card. Dealing with secured debts can cause a lot of stress because there is much more to lose.
Dealing with the Secured Debts
Failing to pay your mortgage could cost you your home. If you have been missing payments, you should know about foreclosure and how to keep that from happening.
Contact your mortgage lender
If paying your mortgage becomes a problem for you, then be sure to contact your lender and find out what options you may have. There are people who are willing to assist you. But if you are not comfortable enough to call your lender, then at least speak with a counselor that specializes in housing issues.
Take immediate action
If you are behind by a few payments, there are some options. You can save money by reducing the payments you owe to others. You can use any money saved and put that money towards your mortgage. Consolidating may also be an option and may result in some extra money that can be applied toward your mortgage. Sometimes a family member might be willing to loan you some money. As a last resort, people may also take money out of a 401K or another retirement account.
Deal with remaining debts
Debt settlement is another helpful option when it comes to dealing with secured debts. In debt settlements, a company talks to your creditors and they come up with a payment plan that is more manageable. Any money saved from a debt settlement plan can go towards dealing with secured debts.
Don’t lose your car
Always make sure that you are staying on track with your car payments. The financing company can repossess your car at any time if you fall behind on payments. In some places, the lender is not even required to notify you that your vehicle is being repossessed. You could wake up one day and not have a car in the driveway.
If you are unable to make payments on your car, you need to contact your lender and tell them about your situation. Your lender may be willing to help you. You may be able to get caught up on missed payments if your lender allows you to pay the full amount owed by a certain time. You can also pay the current value of the car at one time.
Dealing with secured debts is immensely important because there is so much at stake. It does not help to avoid them. They must be faced head-on. Being afraid to ask for help is not the way to deal with secured debts. So be sure to prioritize your debts and do not let yourself fall behind.