With the instability of U.S. financial markets, consumers face many challenges. This article briefly examines four traps that you can get yourself into by avoiding household budgeting as your net income buys less in the inflated economy.
1. Foreclosure
Your first trap is the risk of losing your home to foreclosure. When your home loan enters default and your lender decides to pursue foreclosure, you will potentially become the target of unscrupulous people who offer you services like short sales, foreclosure consulting, and equity skimming. Investors who want to pay off your home loan before the foreclosure process is complete may also contact you. Keeping up with your home loan payment through proper budgeting is one way to avoid this harrowing process and the havoc it wreaks upon your credit record. Another idea is to contact your lender and consider your options before foreclosure becomes inevitable.
2. Car Repossession
Much like the bank foreclosing your home if you default on mortgage payments, your auto lender may elect to repossess your vehicle if you default on your car payment. This process is costly. After the car is repossessed and sold at auction, you are responsible for the loan balance and other fees. The offset of the auction price does not help very much to reduce your debt.
When consumers find themselves upside down on an auto loan, they cannot sell their car to get out of a monthly payment they can’t afford. When you think about which payments to skip in tough times, your house payment and auto loan are two things to prioritize at the top of your list.
3. Losing Your Insurance
Insurance is necessary for assets such as cars and real estate. If you lapse on your insurance payments, you put your home loan or auto loan at risk. While insurance is a payment that you might be able to pay late because of the grace period offered by your insurance company, you don’t want to get so far behind that you lose your asset. One strategy is to shop around for more affordable insurance before your policy expires for nonpayment.
4. Credit Card Cancellation
When you are struggling with big payments like housing and transportation, the credit card payment is something that might fall by the wayside when there is not enough money to pay your minimum payments. If you don’t pay your credit card for a period of time specified by your credit card company (i.e. 90 or 120 days), your lender will cancel your credit card. Your interest rate will also probably increase to the maximum interest rate stated in your cardholder agreement.
While you may hold several credit cards, losing every credit card is not suggested. Your credit card company may not be willing to reopen your account. When you juggle payments, you can work out a different payment plan with each creditor, including your credit card company.
As a consumer with a tight budget, you can ask questions of each creditor to find alternatives to your financial situation. Adhering to a budget is a good way to prevent financial pitfalls.
This guest post was written by Kimberly Willis, who writes about money-saving tips and is a www.coupon.org contributor.