Money problems often lead to many people losing their finances for various reasons. While few people are prepared for unexpected hardships, others fail to cope with them. Having to deal with a financial crisis can add more stress to your life. It can be more devastating to deal with repaying your debts and ultimately falling into the debt trap if you have loans.
Let’s put some more light on this and understand what happens to a person who is unable to pay his debts! Individuals who take a loan from a bank or an NBFC to fulfil a personal need or for business purposes do so with the intention of repaying it on a monthly basis. But what happens if a person neglects or is unable to repay their debts due to a financial crisis? A person who misses a payment on a loan is said to be in default.
What do we call a person who is unable to pay his debt?
Defaulters are people who are unable or unwilling to repay their unsecured loans. In this case, the person is dealing with stress and fear of facing legal issues and harassment from their collection agent. Their uncertain financial situation prevents them from repaying the loan, which leads
Why do some people find it too difficult to pay their debts?
The common reason for people finding it difficult to pay their debts is because they spend more than their limits. In other words, they intend to correct their debt repayment course but end up spending too much.
Additionally, it depends on the mindset of each individual whether they should focus on paying off their debts or still spend more than they are allowed. It is a psychological factor among people that determines that people tend to consider credit cards as free money. They don’t know the consequences of spending more than their income.
Loans for numerous reasons can affect your repayment cycle. Even a single missed payment can stack up and act as a domino, keeping the cycle going and the borrowers down.
A loan should only be signed off if you have future plans or the ability to pay back your debt. It is essential to understand while taking a loan that what you can afford, you can pay on a monthly basis.
Apart from this there are other reasons as well where you can be considered as a difficult puzzle of paying the debts
- Not following a proper plan to repay debts
- Multiple debts make it more difficult to repay
Increase in your interest rate
Your creditors are not your soul, and they won’t accept your reasons every time. In this case, they will raise your interest rate after you’re in default on repayments. This will only result in an increase in your principal amount.
Account will be handed over to the third-party agent
The banks outsource a third-party agency who are hired for the collection of debts from the borrower. Borrowers are contacted in an abrupt manner that affects one’s mental and physical health. They have to work as per the guidelines circulated by the authority, but they make it a completely different situation and contact the borrowers on a frequent basis.
Try to seize your bank account
In this concept the banks put a lien on your account. This means, any amount transferred into your account will be deducted by the banks in a condition of defaulting
Takes legal action
At a very crucial stage when the borrower is not in contact, the lenders then opt for legal action. Legal notices are sent to the borrower, and they are asked to attend court.
How can a debtor pay his debt?
A person who is unable to pay his debts can opt for a Debt Management service where they can pay debts affordably. A debt management service begins at the initial stage of consultation. During the consultation, the advisor asks you why you are in debt.
As part of the consultation, you will be asked questions related to missed EMIs, income, your monthly expenses, etc. You’ll then be assigned an account manager who will handle your repayments and set up an affordable debt management plan. This is where a small portion of your income will be calculated as disposable income and paid to creditors by setting up an affordable plan.
The service will enable you to reduce the amount of harassment calls from the third-party agent by taking legal action against them for inducing illegal debt collection methods.
The only disadvantage of going through a Debt Management plan is that the process will take more time than the actual process. The reason for this is the agreed amount owed to lenders. The saying goes, there is something better than nothing, meaning, rather than facing more criticism, it is best to repay it on time.
They also have in-house advocates who represent you during the time of responding to all the legal notices sent by creditors and making settlements on your behalf. They also look after illegal harassment and take legal action to stop them from harassing you.
A debt management plan is everything for a person who has no idea how to repay their debts. This person is stuck in a trap of mental stress, anxiety, & depression. It is protection that breaks the glass and enables people to repay their debts in a smart and affordable way.
It is important to be aware of your monthly loan cycle rather than ignoring it, as neglecting it can result in a mountain of debt that will leave you trapped, crippled by financial hardship and unable to reach any of your dreams. A debt management company can help you resolve your problematic debt situation by making you debt-free
Credit card default is the costliest mistake a person can ever make which is not easy to fix. A poor credit score on your credit report indicates that you have debt, and this may result in permanently damaging your credit report, and even make it impossible to obtain further loans.
A default on your credit record could be one of the factors that prevent you from getting a new loan.
Even so, in a few cases where the bank finds out even after years of lending money and is unable to recover it from borrowers, there is a chance it can write off your debts. This means that a certain amount will be recovered from the bank and the rest will be written off.