Debt relief programs may ruin your credit
I often receive calls from consumers who are researching debt relief programs whom have recently been dealt a blow in life. In the most common circumstance it is a loss of employment. In others, it may be a temporary increase in unexpected expenses or an illness.
This way, you can keep up the good credit you have worked so hard for.
I felt compelled to share this information with you because so many people I have communicated with were entirely unaware of the ability to make deferments. It occurred to me that this information was not common knowledge. This is my attempt to make it so.
Please keep in mind that the deferment process is not a way to get out of debt sooner. It actually prolongs the amount of time that you will be in debt. Hence, you only want to use these strategies when they are necessary.
What is a deferment? And how can it help me avoid using debt settlement or debt relief programs?
A deferment takes place when you make an arrangement with a creditor to miss a payment without consequence. Generally, deferments are granted for one month with banking institutions, mortgage companies, and auto financiers. Student loan deferments can be for a longer period.
Example: Before the payment is due, I make a call to the bank that services my installment loan. I speak with the customer service representative and ask if I may defer my next payment due. They inquire on my situation and grant me a one month deferral.
Now, because I called the creditor before the due date and they permitted the deferment, this agreement will have no ill or negative impact on me. My excellent payment history will stay intact. The only disadvantage is that my balance will increase by the amount of interest I was charged for the month, since I deferred rather than making my payment to offset it.
The logic and strategy being: if you encounter a situation that is of a temporary nature, one that will cause you to potentially miss your payments and run the risk of tarnishing your good credit, you can immediately start the above activity with your creditors as a way to solve the problem.
What about credit cards?
Unfortunately, most credit card companies don't offer deferments. However, you may be able to buy some time by changing your due dates.
If you feel that you need a temporary reprieve from your credit card payments, call your credit card companies and ask if they will let you defer your next payment. If they explain that they can't do that, ask them if you can change your due date.
Naturally, when you're in this type of situation, you will want to change the due date for as far out as possible. Just make sure to recalibrate your budget after doing so.
If coordinated correctly, your one month of deferments can carry you for a few months or more
Let’s say that I have a mortgage payment that is $1,500. I just lost my job and my wife and I are now short, income-wise, by $500 a month on making the future mortgage payment. My way of protecting myself and buying time is to immediately call all of my creditors and inquire on a deferment (depending on the need of the situation I may even call my auto, installment, and student loans).
If I'm successful in getting my deferment approved by my mortgage company, I'd be able to take the $1,500 that I would have normally paid towards my mortgage and put it in the bank. I have now created the ability to have 90 days of my future mortgage payments covered, since I'm $500 short each month and I now have $1,500 in savings.
An additional strategy is to use the deferment process as a way to aid in creating financial security
Let’s say that you have had recent car trouble. The difficulty forced you to dip into your cash reserve and you have exceeded your financial level of comfort. Naturally, you want to look ahead into the near future for a source of income that can replenish the amount needed for your repairs. If you lack that resource, the deferment process may be your answer.
Surviving in the world today can be a bit of a balancing act...
It is ever so important that we keep up a certain amount of cash reserve. Most creditors will allow you to defer either once or twice a year.
A good tip is to call your creditors and ask about their particular policies about deferments before you intend on using them. Make notes on each of their frequencies of use and whether you can do more than one month at a time. This information may be invaluable to you at some point in the future.
If your situation is more long-term and you're contemplating the idea of settling your debts, please refer to my detailed breakdown about how debt relief really works.