Blogging Away Debt

Loan Defaults and 5 Ways to Get Out of It

In layman’s term, loan defaults are simply debt that you weren’t able to pay. Loan defaults apply to any type of loan – car, home, student, SBA, 401K, payday loans, and the most common – credit cards. Defaults will be incurred once a consumer fails to pay the borrowed amount to their lender, and once a certain period of time has elapsed, your debt will be recorded and will forever be a part of your credit history – which is what you want to avoid. Credit history can be used to formulate a consumer’s credit score, which can negatively affect your future loans.

So, how do you get rid or get out of loan defaults? There are ways, for sure, and you can abide by these tips to make sure you do not incur loan defaults:

Make a budget and stick to it

Never go out of your budget as this can cost you your good credit score, a decent car, and the good relationship with your lender. Once you’ve set a budget, stick to it and make damn sure not to overspend – as you definitely will be sorry for it soon enough.

Choose a lender or can finance company that you can trust

You will be working with them for the next couple of years, so take the time to choose one wisely. Every country has their top lender, Bank of America (USA), Sainsbury’s Bank (UK), Alpha Finance (AU), etc. Whichever lender you choose, be sure to go with the best in the industry. Not just because they can provide car finance with affordable repayments, but also they have excellent customer service that will remind you whenever a payment is due so you can avoid defaults.

Contact your lender ASAP

Anything can be resolved through constant communication. If you know that you cannot pay your loan any further, or you can but you are going to be a bit late, then it’s best to talk it out with your lender. Ask if you have any other option, and if there is any way you can reduce the penalty or default. Ask nicely and surely, you will get an answer that you want to hear.

Consider looking into a debt repayment agency

If you know that you are going to have problems with paying your loans, then don’t sit around and just wait for your lender to chase you down the road – instead, talk to them and a debt repayment agency. Consumer credit agencies will work with you and your lender to come up with alternative payment plans. All you have to do is have your repayment plan approved by the lender, put the money into an account through a debt repayment agency, and the agency will be the one to make the payments for the consumer.

Agree to have your car repossessed

If you do not want to incur any more debts and you have no other options left, then it’s better to have your car repossessed by the lender, rather than having loan defaults that will last for at least 7 years on your credit history. The downside to this is that you will lose all of the previous payments that you have made, but hey, at least, you do not have a bad credit history to your name.

Good luck with your loans, and make sure to follow this list to avoid being caught in an unpayable debt!

“Fun” Little Freak Out

by Ashley

Let me share with you a story about an all-out “FREAK OUT” moment I recently had regarding my pay.

In terms of back-story, I am on a 9-month contract which ends May 19. When my new contract goes into effect I’ll be switching to a 12-month contract. But that contract does not go into effect until the start of the fiscal year, July 1^st. In the interim (May 20-June 30), I will be receiving pay designated as “supplemental compensation” at my current rate of pay (my raise doesn’t go into effect until the new contract).

Since the academic year is soon ending, I emailed our business manager last week asking if I needed to complete any paperwork/what I need to do to get the supplemental compensation to kick in. There was a bit of a process involved last summer and I can’t remember the exact steps.

The business manager replies back basically saying (paraphrasing), “I have no record of you receiving supplemental compensation this summer. Your new contract starts July 1^st.”

And I’m like, “WHAT THE WHAT?!?!?!?!” (insert the Scream emoji face)

I’m instantly reviewing old emails and re-living old conversations in my mind. Is it possible that I misunderstood? That I simply thought I would be receiving supplemental compensation but that I’ll actually be going AN ENTIRE 6 WEEK PERIOD WITH NO PAY WHATSOEVER?!?!?!

I call my husband in a panic. How are we going to survive? Here, I was just saying how these next two months are going to be super tight…I didn’t realize we’d literally have NO INCOME during this entire time period! We (stupidly, in hindsight) sent our entire $5,500 emergency fund to the IRS when we were setting up/establishing a payment plan for our 2016 taxes. What were we thinking?! The IRS felt like an emergency at the time, but with the gift of hindsight, I now realize we never should’ve entirely wiped out all liquid savings. What are going to do?!

Deep breath in. Deep breath out.

I allowed my heart-rate to come down. I emailed my boss to gently inquire into this issue. Was I mistaken? Or am I supposed to be working for the next 6 weeks, as I had planned (not to mention, I’ve got work meetings piled a mile high on my calendar, and all kinds of tasks to accomplish over that time).

My boss was at a conference at the time so it took what felt like an eternity for her to respond. My initial email was sent around 2pm in an afternoon and I didn’t hear back until nearly noon the next day. It was just a simple clerical error. YES, I am supposed to be working (as planned). And YES, I will be receiving supplemental compensation under my current rate of pay until my new contract goes into effect on July 1^st (at which point my nice raise will go into effect).

Just breathe.

I have taken a couple lessons from this experience. First and foremost – we made a horrendous mistake in completely wiping out our EF. We need to get back to at least a “baby” $1,000 EF ASAP!!! Not sure how that’s going to happen given that we’re still grappling just to tread water and not lose ground over the summer. Either way, regardless, we need to have at least a starter EF to help us if, heaven forbid, we face a similar crisis in the future. Second, rather than rushing to panic – maybe just reach out to my boss immediately and try to save the panic for later. In this case, I would’ve been able to sort out the situation and no panic was needed at all. Also, I’m glad I was proactive in reaching out to the business manager BEFORE the semester ended. It would’ve been a terrible surprise to have the semester end and then all the sudden have NO MORE PAYCHECKS when I was depending on them to pay our bills and feed our family! Yikes!

Have you had any financial “close calls” recently?