Many strategies to pay off debt fail because they lack genuine enthusiasm. You may start entirely motivated to become debt-free, but you can quickly become disheartened and lose the effort it takes to see your plan through. If you want to keep momentum in your debt payoff, you must repeatedly remind yourself of the motives to get out of debt by inspecting your bookkeeping records in detail.
Secured Loans
Some collateral or assets back a secured debt. Collateral mainly means the creditor will “hold” the collateral until you repay the loan. While the asset is held as insurance or security for the loan, you cannot deal with the investment in any way without the moneylender’s consent. If you default on the debt for any purpose, the financier has the right to take proprietorship of the asset and sell it to repay the debt.
Proprietorship is also considered “foreclosure” or a “mortgagee sale.” Typically, secured loans draw a lower rate of interest. That is because the risk involved for the lender is a little less. The creditor will not usually lend 100% of the asset’s value because the lender is decreasing its chances of sustaining a loss in the event of foreclosure.
Many businesses owe secured debts—companies usually pledge collateral for credit lines, and business holders often engage their personal property for corporate obligations.
Repossessions
For instance, if you miss a payment or two on your car loan, the creditor has the legal right to physically repossess the car and sell it to recover the money you owe, plus the costs of the sale and attorney’s fees. The investor does not have to get consent or a court judgment to do this. A repo man can regain the lender’s property under the terms of the agreement you signed with the lender. When all is said and finished, you will still owe the difference between what the creditors sell the car for and what you owe on the loan, a “deficiency.” Also, the repossession will appear on your credit report for seven years.
Cars are the most repossessed type of property. Still, if you have borrowed money to buy business equipment or machines and used the purchased equipment as security, the creditor will have the same repossession privileges.
Foreclosures
If you have a mortgage, deed of trust in your house, or an open home equity line of credit, you must make timely payments to keep the house. If you do not, the creditor can and possibly will foreclose on your house because it is collateral for your debt. But foreclosures are not as swift as vehicle repossessions.
Likewise, if you pledge your home as collateral for a corporate loan or line of credit and default, the lender can foreclose on your house. To avoid having the lender foreclose, you must either repay the debtor if the debt is more than your equity in the home or at least pay the moneylender that sum so that it no longer has a reason to foreclose.
The foreclosure procedure works differently in different countries. A judicial foreclosure usually takes a few months longer than a non-judicial foreclosure, giving you time to save some cash and, if required, find a new place to live.
Avoiding Foreclosure
If you are behind on your debt, you might be able to negotiate a loan modification with your creditor. Your other options are selling your home for less than you owe (a short sale) or returning the deed to the lender (a deed in place of foreclosure).
Final Note
Defaulting on a personal loan will have numerous consequences, depending on how you initially obtained the loan agreement and how your bookkeeping records were defined. Defaulting any type of debt, large or small, will have universal financial consequences.
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