Falling behind on bills is stressful. Different circumstances, like a job loss, sickness, or other life changes, could affect your financial situation, making it impossible for you to stay current on the payments. Creditors are not very lenient and want you to pay the debts on time.

Most creditors will not let you off the hook easily. When you run behind on your debts, they will make constant phone calls demanding payments and sometimes threaten to sue you. You can avoid extreme action by negotiating a suitable plan to pay the debt or making other changes to help you deal with this debt.

The following are some of the ways through which you can deal with creditors when you are late on payments:

Consolidate the Debts

Different creditors employ different debt collection methods, which are very disturbing. Debt consolidation combines your debts into one payment that is easy and convenient to pay. You can consolidate your debt with or without a loan. The most common form of debt consolidation is taking a single loan that helps you cover all your debts. This leaves you dealing with a single creditor.

Although a debt consolidation loan is mainly used to cover credit card debt, you can also use it if you are behind on payments for these debts:

  • Unsecured loans

  • Medical bills

  • Collection accounts

  • Past due utility bills

  • Payday loans

Debt consolidation with a loan involves the following steps:

  • Make a list of all debts that you wish to consolidate

  • List the total amount you owe each creditor

  • Write down the monthly payments for each debt and compare them with the payments for the consolidation loan

  • Approach a lending agency or bank and request a debt consolidation loan

There are a variety of debt consolidation plans. Since each person’s financial situation is different, you must understand all the options to enable you to choose what best fits your situation:

  1. Debt management. Debt management is a non-profit form of consolidation geared towards reducing your monthly payments. Working with a credit counselor makes your debt payments into a single monthly payment that is affordable. Enrolling in this debt management plan helps stop debt collection calls from multiple creditors.

  2. Personal loans. Credit unions, online lenders, and banks often offer personal loans to help you consolidate your debt. Using a consolidation loan, you can pay off all your creditors. Paying the creditors reduces the number of calls you receive, and you will only have to deal with the consolidation loan lender. The interest rate for debt consolidation loans is lower than other loans. However, you must understand that your monthly payments for the consolidation loan are not flexible.

  3. Balance transfer cards. Some companies offer credit cards that allow money transfers at 0% interest rates, expiring within eighteen months. Unless you have a good credit score and are sure that you can cover all your debts during the introductory period, a balance on transfer cards is not advisable.

  4. Home equity loans. If you have equity in your home, you can borrow against it. The interest rates for loans borrowed against home equity are lower, but you will risk your home with such a move. Since the loan uses your home as collateral, missing a payment can cause you to lose the home.

Understanding that debt consolidation plans will not always help you deal with creditors when falling behind on your payments is essential. Therefore, making sound financial decisions is crucial.

Settle your Debts in Priority

If you have multiple debts and not enough income. Running late on payments is not uncommon. You can deal with your creditors by paying off the debts on priority. The kind of debt you owe dictates what debt collection actions the creditor has. Understanding your obligations is a crucial step in determining their importance:

  • Secured debts. A secured debt is any debt that is created with a lien. Some common secured debts are loans taken against your home or vehicle. If you default on the secured loans, you risk losing the property or item used as collateral.

  • Unsecured debts. Unsecured debt is any obligation that doesn’t have property attached. When you fail to make a payment on an unsecured debt, your creditors will have no way to collect the debt. Some common unsecured debts include credit card debts, medical bills, student loans, and back rent.

  • Government debt. Some government debts include student loans, spousal support, child support, and taxes. Although the government's debts are unsecured, the creditors have collection rights. Failure to pay these debts may result in actions like wage garnishment.

If you find it challenging to keep up with your bills, it would be best if you paid the high-priority bills first. High priority debts in this case include:

  • Mortgage. Failure to pay your mortgage will result in a loss of your home. If you have trouble covering this payment, you can seek an adjustment.

  • Child support. Although child support is an unsecured debt, failure to pay will attract strict collection measures.

  • Utility bills. Utility bills are payments for basic needs like heating, electricity, water, and gas.

  • Unpaid taxes. Failure to pay back taxes may result in wage garnishment or even prosecution.

  • Secured loans. In addition to paying your mortgage, you should prioritize paying your secured debts to avoid the loss of property used as collateral.

Negotiate Debt Settlement Plans

Debt settlement, or debt adjustment, is resolving delinquent debts for a lower amount than you owe. Depending on your financial situation, a debt settlement offer could range from 10-50% of what you owe. You can either do it by yourself or hire and seek the services of a debt settlement company to negotiate with your creditors. Debt settlement occurs when you are in default. Therefore, you must stop paying your debts before you begin this process.

If you decide to negotiate with your creditors independently, you can follow the following steps:

  1. Determine if settlement is the right option. You cannot enter into a debt settlement agreement until you understand your eligibility for the action. You can do this by calculating the amount you owe and how much you can pay while considering other financial obligations.

  2. Set the terms. As you pursue the settlement plan, you must calculate the amount you can pay for the debt. Often, your creditors require this to be 50% or more. You need to ensure that you can meet the terms of the new agreement to avoid going further into debt.

  3. Keep a consistent story. When requesting a debt settlement agreement, your creditors will need reasons why you fell behind on your payments and stopped paying. Therefore, you must make a list beforehand. Being honest with your reasons is critical in ensuring that your terms are accepted.

  4. Keep detailed communication notes. Most people who seek debt repayment plans have fallen behind on payments for multiple debts. If you negotiate settlement plans with various lenders, keep the contact information.

  5. Know your rights. When you deal with creditors who send unfriendly debt collectors, you should understand that you have rights. The lender cannot threaten to arrest you, shame you publicly, or force you to pay more than you owe.

If you wish to use the services of a debt settlement company, you must pay 15-25% of what the company is asked to pay to the creditor. You will need to stop paying the debts as the company negotiates with creditors. Instead, you will make payments to an escrow account. Once you are done with the payment agreed upon, the debt settlement company can pay your creditors.

Although debt settlement plans reduce the amount you owe to creditors, they can lower your credit score significantly. Additionally, you will have to pay taxes if your creditors agree to settle with a lump sum reduction.

Find Extra Income

Lack of enough income is often the most common cause of late debt payments. No one wants to sit back and answer multiple calls from creditors, each asking for payment for the amount they owe. Finding extra income can help you stay current on your debts. Finding a better-paying job or working multiple jobs are some of the ways through which you can earn extra income.

Like budgeting your spending, you should view the extra income as a way to restructure your financial life and not to find more spending money. In the current digitized world, there are many ways to make an extraction. You can check out online platforms where you can earn money or go the old-school route and find a second job.

Sell Your Assets

If your income is insufficient and you have some assets, selling the assets may be a great way to cover your debts. If you continue to accumulate debt and fall into chapter 7 bankruptcy, the bankruptcy trustee will sell your assets to pay the debt. Therefore, selling the assets allows you to fetch a reasonable amount and choose what debts to cover.

Additionally, selling the assets helps you avoid negative consequences like a poor credit score associated with bankruptcy.

Borrow from Family and Friends

If you have family or friends doing well financially, you can ask them to lend you a hand in offsetting some of your debts to avoid constant calls and threats from your creditors. Along with bankruptcy, borrowing from friends to pay your debts should be the last option. If your financial situation fails to improve and you cannot pay the borrowed money, this could significantly affect your relationships.

If you decide to borrow money from another person, it would be best to treat it like a loan from the bank. Sign an agreement and make an effort to pay back the money.

Restructure of Refinance your Mortgage

Debt restructuring is a process employed by individuals to avoid the risk of defaulting on debts. If you are already rated on your payments, you will default on the debts. If you are behind on your mortgage payments, you can make efforts to refinance or restructure the mortgage.

Restructuring your mortgage allows you to negotiate more favorable terms of the loan and prevent you from defaulting. Some of the adjustments you can seek on your loan include:

  • Extended repayment period. You can negotiate with your bank to extend the length of your mortgage. This allows you to make lower and more affordable monthly installments.

  • Reduce remaining balance. If you are late on your mortgage payments and risk losing your home, you can negotiate to have the mortgage reduced. This helps you to continue making the payments.

  • Reduced interest rates. The interest rates on your mortgage may be high, causing you to fall behind on the payments. One of the ways to restructure the mortgage is by asking for a reduced interest rate.

Make a Budget and Change Your Spending Habits

Some debts, like medical bills, are inevitable since illness or accidents are unexpected events. However, sometimes we stack up debt and fall behind on payments due to poor spending habits. Lowering your expenses and making a budget is an excellent option to avoid bankruptcy and a great way to repair your finances.

Although creating a budget may seem overwhelming when you are used to living a high life, it will be worth it in the long run. Creating a budget involves figuring out the amount of money and how much you spend each month. In your budget, you can cut all the unnecessary expenses and add in the amounts you will pay for your debts each month. Making regular payments helps avoid harassment from creditors.

File for Bankruptcy

Bankruptcy is a legal proceeding that allows you a fresh financial start by discharging your debts or enabling you to form a repayment plan to cover your debts. When you fall behind in payments, creditors may begin to call you, demanding the missed payments. If you have no hope of a change in your financial situation, bankruptcy may be the only option to stop creditors from racing to collect from you.

The automatic stay is one of the protections available for individuals filing for bankruptcy in California. Immediately after you file your bankruptcy petition with the court, the automatic stay goes into effect. The automatic stay forces creditors to stop all their collection attempts throughout bankruptcy. Your creditors cannot call you, send letters or file a lawsuit against you as you pursue bankruptcy relief.

In addition to preventing new collection actions, the automatic stay will place a hold on all collection actions that are in progress. Therefore, if your creditor has begun action such as wage garnishment or filed a lawsuit against you, these actions will be thrown out. There are some exceptions to the automatic stay that you must understand before filing for bankruptcy, including:

  • The automatic stay does not apply to wage garnishment and other efforts to recover debts like child support or spousal support.

  • The IRS can legally arrest, audit, and demand back taxes.

  • The automatic stay does not stop criminal cases from moving forward

  • You have limited protection from the automatic stay if you have filed bankruptcy in the past

After the automatic stay goes into effect, the bankruptcy court appoints a bankruptcy trustee to handle your case. With chapter 7 bankruptcy, the trustee liquidates all your assets to cover the secured debts while the unsecured debts are discharged. On the other hand, chapter 13 bankruptcy allows you to make a three to five years debt repayment plan.

Although bankruptcy gives you the benefits of the automatic stay, you will have to deal with the life-changing effects of bankruptcy, including:

  • Bankruptcy damages your credit score. The bankruptcy action remains on your record for seven to ten years. During this time, creditors may be reluctant to offer you credit.

  • Broken vendor relationships. Creditors whose debts are discharged in a Chapter 7 bankruptcy may not want to work with you after bankruptcy.

  • Loss of assets. In a Chapter 7 bankruptcy, the trustee sells all your assets to pay your debts.

Find a Reliable San Diego Bankruptcy Attorney Near Me

With a good credit score, you can enjoy all sorts of loans. When creditors lend you some money, they expect to recover the amount with some interest. Sometimes, unforeseen financial circumstances make it impossible for someone to pay their debts, and they fall behind on payments. If you cannot keep up with your payments or fail to pay altogether, creditors will start calling you and making collection attempts. If the situation is not resolved, the creditor could turn to a third-party collection agency to harass and threaten you.

No one wants to have creditors on their back all the time. Therefore, you can employ different methods to deal with the creditors and avoid further action. Common ways of dealing with a creditor when you are late on payments include negotiating repayment plans, finding additional income, consolidating debts, or even filing for bankruptcy. Not all actions taken in dealing with creditors are right for you. Therefore, you will need a bankruptcy attorney by your side. At San Diego Bankruptcy Attorney, we offer expert legal guidance to all individuals undergoing financial crisis or bankruptcy in San Diego, CA. Call us at 619-488-6168.