Rock, paper, scissors. It’s a fun game, but not when we’re using it to decide which bills to pay each month.
Some consumers are faced with the challenge of picking which bill(s) they will be able to pay or not pay because they just don’t have enough money to cover them all. The question often revolves around which bill is the most important to pay right away. It could be their mortgage or rent, car payment or utility bills, cable bill or credit cards. Although this seems like a fairly straightforward answer, for many Americans, it’s not as black and white as you would think.
Many different factors can play into these decisions such as necessity, the amount of money owed, and the perceived consequences of not paying. We believe the challenge is increased because most consumers are not well-informed about their options and the consequences of their actions. It’s important that consumers are both, fully educated prior to making these decisions and that they have an understanding of the full impact these decisions have on their credit score in both, the short- and long-term. All too often, an uninformed decision can result in unexpectedly negative results, including the impact to their credit score.
There may be several steps a person can take to tighten their belt while strategizing the best options that will minimize the impact on the credit score. In many cases, it all starts with a simple list. By making a list of your current debts and then building a plan, beyond the one-month view we can get stuck in, we will find the opportunities to get through each debt.
Review every debt and consider all the options available to reduce the monthly payment (e.g., interest rate changes, term changes, debt consolidation, selling of respective assets, etc. …).
It’s important to note that meeting debt obligations on a consumer’s own terms will almost always end with better results than waiting for creditors to make the decisions for them. Though, this does not mean a consumer shouldn’t contact their lender. In the majority of foreclosures and payment defaults that have occurred across the United States, one of the borrower’s biggest mistakes is that they never contacted their lender. Home loans typically have the biggest overall impact on credit scores. If a consumer is struggling to maintain their payments the first steps to consider should be:
- Contact your lender.
- Explain what your challenge or hardship is and how long you expect the difficulty to last.
- Ask them to assist you with any solutions they may have available.
Interest rates are still at low rates. This gives lenders and credit card companies flexibility to help their customers. For some homeowners, simply refinancing their first and second mortgages will be the best option. Lenders generally have more options at their disposal to help customers in need than ever before. This may include internal programs the lender has created, as well as non-profit organizations, city, state, and federal. So, there are many ways they can help consumers.
If you are one of the individuals or families struggling to financially survive every month, the key is to avoid becoming one of the statistics. Regardless of your personal situation, each individual has an opportunity to take the guesswork out of the process. Then you can begin to understand the options available to more effectively manage your credit and debt. The good news is that options and services like the ones we’ve discussed here, exist to help you weather this storm.
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