Unsecured debt, which includes personal loans, credit cards, and other debts that is not provided to purchase a single expensive item, can grow exponentially when a borrower experiences a financial setback. When a credit card payment is late, the borrower usually accrues a late charge, as well as over-limit fees if their account balance surpasses their credit line. This can create a vicious cycle of mounting debt combined with a period of financial instability that inhibits the borrower's ability to become current on payments.
As the borrower's credit score becomes negatively impacted because of late payments, credit card companies may consider them a credit risk and raise the interest rates on their accounts, creating an additional financial burden.Fortunately, there are multiple options for individuals who are facing financial hardship and late debt payments.
What are a borrower's options for dealing with mounting unsecured debt?
Negotiate with credit providers
A borrower can negotiate with their creditors to pay missed payments in a series of installments if their period of financial instability has passed and they are able to pay additional amounts on their regular monthly payments. Late fees and negative credit reporting will still occur until the account is brought to current status, but it allows the borrower to catch up without paying for arrears in one lump sum payment.
If this is not possible because of financial constraints, the borrower can agree to close their account and set up a payment schedule to repay the balance owed. The account may no longer be used, but late fees are usually waived and interest rates may be adjusted by the creditor.
Debt consolidation through a credit counseling agency
A borrower may be able to consolidate their unsecured debts through a credit counseling provider. These organizations are funded by credit providers and will negotiate with creditors for lowered fees and interest rates for unsecured debt. The counseling service will set up a payment schedule with the borrower after making deals with creditors. This schedule will require a single monthly payment to be paid to the counseling service and distributed to each of the creditors according to amounts owed.
Payments will usually be more manageable through this service because of the willingness of credit providers to negotiate with the counseling providers. The only costs involved are small fees for required entry and exit counseling when a borrower agrees to enter their program.
There are two types of bankruptcy for debt burdened consumers. Chapter 13 bankruptcy allows borrowers to keep their assets, but allows unsecured debt to be repaid according to income and living expenses? Secured debts, such as car and house payments, must be paid in full through renewed contracts, but arrangements can be made for missed payments.
If a borrower has limited resources beyond necessary secure debts and living expenses, monthly payments during the repayment period of three to five years will be adjusted to be affordable. Creditors are forced by the court to accept these payments, which are paid through a court trustee and distributed to creditors on a monthly basis.
If the borrower cannot afford any repayment plan, chapter 7 bankruptcy is their only option. All debt is erased, but the borrower will be required to surrender assets to repay creditors. Because bankruptcy law is complicated, and exemptions vary by state, it is wise to consult with a chapter 13 or chapter 7 bankruptcy attorney to assure that your rights are fully protected and that you can keep payments as low as possible and keep all assets allowable by law. Contact a lawyer, like http://www.lebaronjensen.com/, for more help.