Avoiding Irresponsible Lending & Managing Your Debt
When borrowing a mortgage loan, making payments on a car and dealing with credit card bills and multiple insurance costs, the numbers of each can get a bit overwhelming – or go unnoticed. But homeowners today will impatiently and quickly make all payments, and get into loans and mortgages without really thinking carefully and analyzing what they are doing.
There are many dangers and obstacles when it comes to borrowing multiple loans, especially if you fall behind on your payments. When receiving and maintaining your mortgage loan – arguably the most important loan – extra attention and care must be taken to ensure you’re not a victim of predatory lending.
Responsibly managing lending habits, credit and debts will help you avoid paying more money than you have to, as well as keeping you organized and safe from hidden risks. The first step to doing this is fully understanding what you’re paying and receiving and also knowing what you’re signed up for.
Managing (or hopefully avoiding) Debt
If you are in debt, or just want to completely avoid it, then creating a tangible budget (one that you could actually reference to and is not just in your head) will keep you organized. Make sure you budget for both “fixed” expenses such as car payments and “fluctuating” payments such as entertainment, clothing and food, etc. Even documenting smaller expenses, such as a drink at the bar or a candy bar from the convenience store will help you realize your spending habits and assist you in prioritizing. Do not spend money on things you do not necessarily need during financial instability, but only on things that will help you get back on track.
Understand which assets you own that are tied to a potential debt. If an asset is tied to a debt that means that it is secured. An example of this is a car loan where it is tied to the actual asset of the car, and if you fail to make your payments for that loan then the lenders can repossess the car. They may let you make payments even after repossession to offer you a chance to get it back, but most of the time they might just sell or auction it off.
If you were to fall into debt, there are services such as debt relief, government programs and credit counselling that can help you get out of that deep hole. However, be wary of some suspicious looking debt relief companies that may make you suffer more than help you. Make sure you have clear and consistent communication with any debt relief service before you even receive assistance. Keep a keen eye out for anything that looks illegitimate. Suspicious actions include if they want to charge you any fee before they help you or if they don’t give you free information right out the gate.
It’s the responsibility of the consumer to understand what kind of loans they are getting into. Yes, some lenders will have loans that look extremely good on paper, but it’s up to the borrower to understand the repercussions of receiving a “too good to be true” loan.
Predatory lending – which creates unreasonable costs and situations for borrowers – most commonly occurs in the “sub-prime markets”. Sub-prime mortgages are loans that are given to borrowers who have less favourable credit histories and typically don’t have the cash readily available for a down payment. In result, many borrowers go for adjustable-rate mortgages. Lenders may take advantage of unassuming borrowers and create damaging situations for them.
Some things to wary of when purchasing a loan in a sub-prime market is are high interest rates and fees, broken promises or “bait and switch” and aggressive tactics. When confronted with these, ask either a lender or even your REALTOR® many questions so you fully understand the implications of the mortgage loan.
Be certain and knowledgeable about the loan you get into, because a bad loan can damage your credit even more, especially if you carry a lot of debt already. Sometimes the best thing to do is to wait until buying a new home to get rid of bad credit and save some money for a more stable mortgage. If you have to move right away, however, be sure to ask a lot of questions and do as much research as possible.