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One in five American households are behind on debt payments, new federal data reveals. It has been 16 years since the rate has been that high, according to a Federal Reserve survey of 4,367 U.S. families. And that may have a lot to do with the average American’s stark financial circumstances.
Some 61 percent of people are making less than $50,000. Some 34 percent earning $50,000 to $100,000 are living paycheck-to-paycheck, defined as struggling to save and make progress on long-term financial goals, according to a September study by financial firm Goldman Sachs. “My view is that many households have too little room between their necessary expenses and their income," Brian Mix, a mortgage professional and financial educator, told The Independent in an email.
“When debt payments compete with groceries, insurance, utilities and housing, one unexpected expense or interruption in income can push a manageable budget into delinquency .” Falling behind on loan payments is becoming more common as rising cost-of-living squeezes consumers’ wallets dry (Getty Images for We, The 45 Mill) While digging out of late payments can seem overwhelming, the first step is simple - pick up the phone, experts say. Make the call Consumers behind on their debt need to take action , according to the Federal Trade Commission. But before trying to pay off what they owe, they should call the lender and explain their situation.
The lender may be willing to offer a payment solution or adjust the loan if they believe the consumer is acting in good faith, the commission said. “Most lenders will work with you if they believe you’re acting in good faith and your situation is temporary,” it said. “Your lender might be willing to lower or suspend your payments for a short time [or] extend your repayment period to lower your monthly payments.” Whether a home, auto or personal loan, be sure to ask the lender if there are any consequences or fees related to the payment or loan modification.
“Keep good records of who you talk to, what you agreed to do, and next steps,” the FTC suggests. “Make sure they send a written version of any agreement you make - and save it until all your payments are made, to avoid any future issues.” Press pause Certain loans let borrowers pause payments if they can’t afford them - also known as a “forbearance.” Federal student loan borrowers can request and activate a forbearance by filling out an online form and sending it to their loan servicer. Situations that qualify for a federal student loan payment forbearance include financial difficulties, medical expenses and a change in employment, according to the Department of Education.
In general, borrowers can use a forbearance for up to nine months in a two-year period , the department says. Some mortgage lenders give forbearances , too, according to the Consumer Financial Protection Bureau. But consumers should only use it if they understand the consequences.
Some lenders will require the borrower to pay back all their skipped payments at once when their forbearance ends. Others add the skipped payments to the end of the mortgage, extending repayment. “Forbearance does not erase or decrease the amount you owe on your mortgage.
You have to repay any missed or reduced payments,” the bureau notes. Bring in a pro Nonprofit credit counseling organizations can help consumers identify how they’ve fallen behind on payments, create a plan to address late payments and build financially responsible habits. The first call with a credit counselor typically lasts 30 minutes to an hour , according to the National Foundation for Credit Counseling, a national organization made up of credit counseling agencies.
By the end of the call, the counselor usually knows and discusses a financial plan that’s best for the caller’s situation, the foundation said. In many cases, the consultation phone call and any educational material the consumer gets are free , according to credit bureau Experian. More in-depth solutions such as a debt management plan may require a setup fee of $75 and monthly fees between $25 and $50 , the National Foundation for Credit Counseling notes.
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Source: The Independent
