Behind on Debt Payments? You Have Options

A good majority of Americans have some amount of debt these days. And attitudes toward being in debt have changed quite a bit over the years. But many don't even know that they have options that will help them get out of debt.

Living with Debt

Robert D. Manning, PhD, of the Rochester Institute of Technology, conducted a study ("LIVING WITH DEBT: A Life Stage Analysis of Changing Attitudes and Behaviors." In it, he found that:

• Living with higher levels of debt has become an acceptable way of life, and many have developed an inability to adhere to a personal budget.
• Many people feel pressure to increase spending on their children and grandchildren to keep up with their lifestyles.
• This financial overextension decreases their ability to save for their own retirement or for their children's college fund. Their children end up having to pay for their own education and incur more debt themselves, especially as the cost of college rises.
• The idea of owning a home has grown beyond a need for shelter to providing a tangible and secure investment.

Freddie Mac, a federally controlled and operated corporation that buys and sells residential conventional home mortgages, conducted a survey and found that more than half of the delinquent borrowers surveyed didn't know there were ways to work out their situation with the lender.

It's common for people to feel embarrassed or frightened to call their lender, but once they realized there were ways around their financial problems, they were eager to find out what they could do.

What Can You Do?

It's important that you get caught up as soon as you can. The way to do that is to first, contact your lender. Upon learning of your situation, many may be willing to work out a "catch-up" plan so that your home doesn't go into foreclosure. In fact, mortgage servicers are required by Freddie Mac and Fannie Mae to explore options with delinquent borrowers. Many lenders are willing to renegotiate and may be willing to postpone payments or receive a smaller payment.

There are also ways to use your home as a lifeline. With so many loan options available these days, you can manage your mortgage in ways that work to your advantage.

Consider Refinancing

If you have a lot of debt that you can't seem to handle, consider refinancing your home loan. It's a good way to increase your cash flow while consolidating your high-interest debt and paying it off.

You can do a "cash-out refinance" -- you get a loan for more than what you owe on the original mortgage and have cash left over to pay off high-interest debt.

Make sure you ask about the availability of interest-only options. Interest-only loans allow you to pay only the interest and as little (or none) of the principal as you wish for a certain amount of time during the life of the loan. By directing less of your money toward your monthly mortgage payment, you can increase the amount of cash you have and redirect it toward paying off your other debts. Quicken Loans offers the SmartChoice Interest-Only Loan that can help you do just that.

You can also get a home equity line of credit which is a second mortgage that turns your home equity into cash. The benefits of this type of mortgage are that it closes faster than a traditional first mortgage, your rate is generally lower than a credit card and the interest is usually tax-deductible (Consult your tax advisor to determine if this is the best option for you).

Quicken Loans also offers the Secure Advantage loan that allows you to choose between four different payment options including the minimum payment option. The minimum payment is calculated by your interest rate minus three percent, giving you an incredibly low payment and allowing you to increase your cash flow to pay off your high-interest credit card debt.

Be Careful

You must manage your mortgage and your finances properly to ensure you don't go into debt again or lose your home to foreclosure.

Once you've paid off your high-interest credit cards, don't go charging up your balances again. Otherwise, you risk falling into a repeating cycle of debt. Keep your credit cards for absolute emergencies and pay cash whenever you can.

It also never hurts to look into credit counseling. If you're constantly having trouble making payments on time, it may be wise to find a reputable credit counselor so that you can learn how to budget yourself and better manage your finances.

If you're in debt, there's no need to feel frustrated or embarrassed or to fear those intimidating collection calls. There is always a way around everything; you just have to find it.

Call your lender to let them know you're having trouble and see if there's a way to manage your mortgage in a way that will help you. You may find that you have more options than you ever thought possible. If you'd like to know more, please consult a Quicken Loans home loan expert by calling (800) 963-2177.

Courtesy of ARA Content