Though many people enjoy a higher standard of living than ever before, countless others still live their lives with the stress of financial indebtedness. According to data by Comet, approximately 80 percent of Americans have debt across student loans, mortgages, credit cards, medical debt and auto loans.
Debt isn’t always bad, but it is when a debtor can barely struggle to keep pace. If a loan payment is becoming more than burdensome, you may be able to modify it.
Let’s explore a few scenarios below.
Though mortgages involve a lot of money, the interest rate and terms associated with them can often be worked out if a mortgage experiences a financial hiccup. At the first sign that there may be trouble paying your mortgage, contact your lender and explain your circumstance. Being proactive about your situation could result in a zero-interest grace period. These may be unlikely scenarios, but they can’t happen if they’re not asked about.
If you have a decent chunk of equity and good credit, you could refinance the loan by reducing your interest rate to make your loan cheaper or by extending the terms of your loan for lower monthly payments. Restructuring typically carries fees, but you’ll be able to pay them over a duration in exchange for the immediate financial relief.
If you don’t qualify for a refinance, you can modify your mortgage if you are eligible for forbearance, such as through a family death, job loss or injury sustained.
If you can’t reach a compromise with your lender, don’t shy away from mentioning bankruptcy, which would eliminate all or most of the unsecured debt. If they don’t take that, then try to reduce your debt sum to an amount you can afford to pay off quickly in cash.
New automobiles are expensive. In fact, seven million Americans have delinquent auto loans. While you should reach out to your lender as early as possible about your difficulty in repaying the loan, most lenders won’t even help until after a loan is three months past due.
Like with mortgage modification requisitions, your case will have a better chance of being approved if you tie in a reason for financial hardship like divorce or a reduction in pay. Only request a modification when you’re completely clear on the terms you need. Having a concrete plan, as well as communicating your intent to pay back the loan, will give you the best chance of getting a modification. Of course, with auto loans, the vehicle can be repossessed any time a debtor is behind on payments.
Some positive changes have occurred with the IRS in recent years. They increased the dollar threshold for tax liens resulting in fewer issued liens as well as streamlined the offer of compromise process. The latter can settle your back taxes for a reduced sum if either you cannot make the payments you owe, or if doing so would create a financial hardship.
Debtors that do receive tax liens and that don’t qualify for an offer of compromise can still apply for repayment plan via the Online Payment Agreement or Form 9465.
According to Investopedia, when submitting a request to the IRS for a payment plan, it helps to:
- Let the IRS know you’ll pay the debt off within five years – but ideally within two years.
- Aim higher. The monthly payment you negotiate with Uncle Sam should be equal to or higher than what the government believes it can garner from you from a negotiated agreement initiated by the IRS.
- The regular (usually monthly) tax payment you introduce to the IRS should be tied to existing IRS criteria. For example, you should subtract household expenses from your total income. Then cut a check for the difference to the IRS.
Whatever you do, tax debt is nothing to let fester. It might take the IRS some time to come after you, but when they do, it could shake your reputation and overall financial life.
Credit Card & Other Unsecured Debts
As rampant as credit card debt is, it’s one of the easier debts to restructure, settle or completely resolve depending on the strategy a debtor pursues. This is because credit card debts (like bank loans) aren’t tied to any collateral. With nothing to leverage physically, many creditors are open to making things work and getting as much of their owed amount as possible.
You could ask to lower your monthly payment or interest rate or seek a balance transfer that offers a zero-interest introductory rate in exchange for a 3 percent transfer fee.
If you can prove financial hardship and contact your creditor ahead of time, they may even discharge a percentage of your balance. If you owe more than you can settle, declaring bankruptcy will eliminate most or all of your debt. If negotiating on your own isn’t desirable, reviews of companies like Freedom Debt Relief indicate successful settlement outcomes, usually after a negotiation period of two-to-four years. During this time, you’ll save up money to eventually settle with the creditor(s) for a lump-sum amount.
Few would argue against a change in healthcare. Medical bills are the most significant cause of U.S. bankruptcies, affecting around 2 million people, per CNBC. Many of these people are under- and uninsured. So while healthcare costs don’t seem to be decreasing anytime soon, many debtors don’t realize that their current bills could be drastically reduced. Those without adequate insurance might be able to qualify for hospital assistance.
In all cases, better outcomes will occur with proactive communication. Contact your hospital as soon as you receive your medical bill. It’s also worth stating that initial hospital bills are only estimates and definitely open to negotiation. If you’re unable to reduce your bill, see if your hospital offers a zero-interest repayment plan. And if you think the hospital is being unreasonable about your bills, call around to other hospitals in your area to gauge whether you’re being fairly charged.
Debt is one of the most stressful things there is to endure, but it’s made more comfortable knowing we’re not alone. Others have gone through the process before, and nothing lasts forever—at least if you take the first step to solving your financial predicament today.