Secured vs. Unsecured Debt
Debts are considered either “secured” or “unsecured.”
Secured debts are usually attached to an asset or collateral,
like your car for a car loan, or your house for a mortgage.
If you default (stop making payments) on these loans,
the lender can repossess your car or foreclose on your
house. Unsecured debts are not attached to assets, property
or collateral. Most credit cards, medical bills, signature
loans and debts for other types of services are examples
of unsecured debts. Debt repayment plans usually are
directed only toward repaying your unsecured debts.
If your secured debts are not included in the repayment
plan, you must continue to make payments to these creditors
directly.
The lender that gave you your automobile loan generally
holds the title to the car until you pay the debt in
full. Most automobile financing agreements allow the
lender to repossess your car, without notice, if you
default on the loan. If your car is repossessed, you
may have to pay the full balance due on the loan, as
well as towing and storage costs, to get it back. If
you don’t pay for the car and additional expenses, the
lender may sell the car. If the lender does not get
the full amount you owe on the car when it is sold,
you are responsible for paying the difference. Work
with your automobile financer if you fall behind on
your car payments; most finance companies will work
with you to resolve the issue. Consider selling the
car yourself and paying the proceeds to the finance
company. To avoid repossession and negative entries
on your credit report, make your payments.
If you are having trouble making your mortgage payments,
contact your lender immediately to avoid foreclosure.
If they believe you are acting in good faith and the
situation is temporary, most lenders will work with
you. Sometimes, lenders may reduce or suspend your payments
for a short time to let you resolve financial issues.
You may have to pay late fees when you resume regular
payments, but at least you still have a home. Your lender
may also agree to change the terms of the mortgage contract,
or refinance the loan to extend the repayment period
and reduce the monthly payment amount. Be sure to ask
your lender about any fees charged for these changes,
and consider how much they add to the total cost of
your loan.
If you are unable to work out a plan with your mortgage
lender, contact a housing counseling agency. Though
some housing counseling agencies limit their services
to homeowners with FHA mortgages, many offer free assistance
to any homeowner experiencing difficulty making mortgage
payments. Call the local office of the Department of
Housing and Urban Development (HUD) or the housing authority
in your state, city, or county for help in finding a
housing counseling agency near you.
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