Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
What to Do When You Default On Your Debt
Moneymagpie Team
15th Aug 2024
There are so many things you will need to avoid in life and defaulting on your debt is one of them. This could lead to serious legal repercussions. You are poised to lose more possessions to compensate for the creditors’ losses.
The good news is that they can’t possibly force you to pay them with money you don’t have. Defaulting doesn’t mean you’re at a dead-end. You are simply given options on how to pay your creditors without adding to the burden. Here’s what you should do to deal with defaulting:
Assess your debt situation
Many countries have legal protections in place for borrowers who are struggling to pay their debt. For instance, in South Africa you may receive a Section 129 notice that lets you know you’ve been behind your scheduled repayments.
Meanwhile, the Consumer Credit Act of 1974 allows UK borrowers a 14-day window to deal with their debt before creditors can register a default against them. Wherever you are, use the grace period to assess how much you owe and determine your capacity to make timely repayments. You should also take this as an opportunity to explore other ways to extend the deadline or write of the debt entirely.
Negotiate with creditors
After assessing your financial situation, you might find that you need more time to pay the debt in full or that you can agree to extending the terms and reducing the repayment amount. You can talk about these options with your creditor. It would fall in your favor if your debt agreement includes a forbearance clause in case of unexpected disruptions such as a death in the family or being laid off from your job.
If you’re fortunate, your creditor will waive fees and reduce your interest payments or, better yet, give you a timeframe in which no collections will be made. Just be sure to provide them with details on why you’re unable to pay on time. However, you will get a better deal when your credit background shows on-time payments.
Choose the right legal options
In case your creditors are putting their foot down on you and insist on a default judgment, talk to a credit professional and find out other legal means to reduce the judgment’s impact on your financial future. There’s a good chance that your creditors will agree to settle the debt, allowing you to pay a part of what you still owe. The downside to that is a massive stain on your credit record. Going through debt settlement will make it harder for you to apply for a mortgage and get affordable repayment terms in the future.
Another option is filing for bankruptcy, which is often touted as the last resort in the event of default. This would only be ideal if you lack the capacity to recover from your debt situation. While it can still impact your credit score, filing for bankruptcy can wipe away your outstanding debt and clear you from defaulting. You just have to talk to a bankruptcy lawyer and determine which type of bankruptcy could give you the best terms without affecting your finances.
Endnote
Defaulting on your debt could put you in dire straits, but so long as you know what to do once a creditor threatens you with a judgment, your financial future is as good as safe.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
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