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Do you know the difference between secured and unsecured debts? It's relatively simple. Unsecured debts are those where you are not required to provide any collateral to secure them. The biggest example of unsecured debts is credit card debt. You can get a credit card simply by filling out an application. If you default on this type of debt or any other unsecured debts, about all a lender can do is harass you to pay off what you owe.
In comparison, secured debts are those where you are required to pledge some asset as collateral. A mortgage is the prime example of secured debt because it is secured by your house. If you were to default on your mortgage, your lender could repossess it. Another example of a secured loan is an auto loan that is secured by your automobile and could be repossessed if you miss your payments.
They’re not all equal
All debts are not equal. If you default on credit card debt, about all that can happen is that you can get hollered at either by your creditor or a debt collector. However, there are debts where there can be very nasty consequences if you fail to make your payments.
If you become past due on your mortgage
If you become past due on your mortgage you could end up losing your home. If you’ve been missing payments, you need to be familiar with the foreclosure process and what you could do to avoid it.
Contact your lender
If you fall behind in your mortgage payments, the best way to forestall losing your house is to get in touch with your mortgage lender to discuss your options. You will probably need to contact its loss mitigation department. If there is some reason why you would rather not want to do this, you should get in touch with an HUD-approved housing counseling agency.
Take immediate action
If you just missed a payment or two, you might be able to catch up by negotiating reduced payments with your other creditors and then use the money you saved to catch up on your mortgage payments. For example, you might be able to lower your monthly debt payments by consolidating them, which again would free up money you could use to get caught up on your mortgage payments. Barring this, you might be able to get a loan from a relative or friend or borrow money from your retirement account or your whole life insurance policy.
Settle your debts
A better way to handle those unsecured debts is through debt settlement. You could contract with us to negotiate settlements with your creditors, which could save you thousands of dollars. Plus, you would have a payment plan that would be much lower than the sum of the monthly payments you’re currently making, which would help you get caught up with on those mortgage payments.
Don't lose your automobile
It may be even more important to keep current on your car payments. This is because the company that financed the purchase of your car can take it back without getting the court’s permission. In many states, the lender doesn't even have to give you any advance notice that it's going to repossess your vehicle. You could literally walk out the front door one morning and find that you no longer have a car.
If you think you may not be able to make one or more payments, the best thing you can do is to contact your lender to see if it might be willing to work with you. If not, you really only have two options. You might be able to “reaffirm” the loan – if you can pay the full amount of your past due payments in one lump sum. Or you might “redeem” your car, which means paying off its current value in one lump sum.