How to Avoid Defaulting on a Loan

Defaults are the number one problem a person can face in regard to their credit. For some people, one default can lead to an incredible leap in interest payments, up 10 percent or even more. The average APR for credit cards is 20 percent. At that rate, most people are going to be in debt for years on end.

Difficulty: Moderate

Instructions

1. Always pay your bill as soon as you get it. This is one of the main reasons people default: procrastination. You may have to wait for a paycheck to clear. If this is the case, keep your bills in the same place every month so you’ll have quick access once you have the funds to pay your bills.

2. If you receive a paycheck on a certain date every month, you can work with your lender to send you a bill around the same time so you’re able to pay off the bill as soon as you get it.

3. If you’re unable to make payment one month for a bill, contact the lender to work something out. This is most effective if you’ve generally been a good, responsible borrower. If you’ve defaulted time and again, you’re less likely to get a sympathetic ear.

4. Keep track of due dates. Don’t send off a bill a day before it’s due. The postmark is not as important as getting the bill in before the due date. Bills are processed by human hands, and the postmark may not be recognized, or your lender doesn’t even see a postmark as valid. Instead, send in your bill well before the due date.

5. Set a budget. Determine how much you’re spending every month, including cups of coffee and other minor expenses. This way you’ll know if you have sufficient funds left when bill time comes around and you won’t overextend your savings account. Keep credit card debt at a minimum as well.

Tips & Warnings

• If you feel like you’ve been charged a default fee unfairly, you could call the lender and dispute the default fee. This will only work if you have a good history with the lender.
• If you have really fallen on hard times, you can work with a debt settlement company or a debt counselor who will reduce the amount of debt owed every month. However, some debt settlement plans are not recognized by the lender so if you pay less every month, it could be recognized as a default. Check the debt counselor’s qualifications.
• Look into a forbearance agreement. This is a plan for mortgage in which the lender suspends payment for a predetermined period, normally around three months.

[christye]

on 6/15/2009 Very useful tips!