Almost every American has debt these days. Taking on debt can be necessary to improve our lives and plan for our futures. Due to the needs of everyday life, many people have student loans, credit card debt, mortgages, and auto loans. Some people even take on debt for others. For example, parents often help their children by cosigning or directly taking on loans for vehicles, college, weddings, and their first homes.
Consistently paying all these different lenders every month is a lot to juggle and can be challenging. If you need help getting out from under your debt, get in touch with a debt relief attorney to help you learn about your options and ensure you can make informed financial decisions.
How Do Lenders Handle Financial Risk?
If you’ve ever agreed to let a friend or family member borrow money from you, you may be familiar with the risk that you may never see that money again. Broken promises, such as failing to pay someone back, can damage friendships and sometimes even family ties.
It makes sense that lenders want protection from the possibility their borrowers will never pay them back. Even people with the best intentions who sincerely promise to pay back their debt may have their situations change unexpectedly.
One action lenders take to lower their financial risk is finding out if the person seems likely to pay it back. After all, if banks gave money to whoever asked for it, they would only be in business for a short time.
Lenders also establish what will happen if the borrower fails to pay them back before they enter the financial relationship. If they don’t get paid back, lenders can try to recoup the money they lost by suing you, taking your property, or garnishing your wages.
Types of Debt
Some lenders require you to have a high enough credit score for them to let you take on debt, while others may need you to have a certain amount of money in your bank account. One lender may have specific requirements for similar purchases that another lender may not.
So what determines if you can borrow money and take on debt? There are two different categories of debt: secured debt and unsecured debt. The type of debt you take on determines what requirements you must meet and what legal protections you and the lender have.
We consider debt “secured” when the borrower uses collateral for the debt. “Collateral” means valuable things a person owns that the lender will take from them if the debt becomes overdue. Collateral can be assets like vehicles, real estate, stocks, or even money in a savings account.
If a lender wants the debt to be secured, the person taking on the debt must give the lender information about the things used as collateral. If the borrower misses too many payments, the lender will use the borrower-provided information to take the collateral into the lender’s ownership. The lender will then use the collateral to cover the money they still need to be paid back.
Reach out to Benner Law today if you see missed payments on the horizon to determine if loan modification could improve your financial situation. Getting ahead of the problem is vital if paying off your loan is too challenging. Even though you agreed to these terms when taking on your debt, sometimes an attorney can help you modify the terms of the agreement.
We work with lenders to help clients avoid repossession, filing for bankruptcy, and negative impacts on their credit scores by reducing their monthly payments, changing their interest rate, or sometimes even halting payments entirely.
We consider debt “unsecured” if the lender does not require collateral for a person to borrow money from them. However, most lenders have some other requirements that someone must meet for them to give them money. Before lenders agree to give money to someone who would take on unsecured debt, they usually try to determine if the person is likely to pay their debt. Credit scores, bank account balances, and credit references are all information lenders can use to decide if they will allow a borrower to take on unsecured debt.
Student loan providers and credit card companies are examples of lenders that allow borrowers with little financial history to take on unsecured debt. Credit cards can offer security to cover emergency expenses and help people make it to their next paycheck. However, credit card debt can be intentionally misleading and get away from you quickly. If this sounds familiar, consult an expert attorney about your credit card debt as soon as possible to help you take the reins of your financial health.
Medical debt is another common form of unsecured debt. Many Americans end up owing money to medical providers because they don’t have health insurance, or they find out after the fact that their health insurance doesn’t cover all of their care or that one of their providers was out of network.
In the case of medical emergencies, sometimes a person only knows they’re going to be in medical debt once it’s already happened. Doctors at the emergency room cannot deny their care simply because a patient cannot pay if it would cause the patient harm, so unlike other forms of debt, there are few restrictions on who can take on debt when they have a medical emergency.
Set Up a No-Cost Consultation with Benner Law
Because most of us have debt, it is safe to assume most of us have missed at least one monthly payment to a lender. Life is a lot to manage. Losing a job, getting sick or injured, or handling family emergencies can abruptly change someone’s financial situation and make debt much more difficult to keep organized.
If you’re struggling to control your debt, call Benner Law for help at 774-404-8321. The best time to address your debt was yesterday, but the next best time is today.