4 Strategies to Lower Debt Payments

You can modify the terms of your loan to achieve lower debt payments. Most people looking to do this have had a change in their financial situation and can no longer afford the monthly payments they are facing. For example, a medical emergency, layoff or divorce can affect a person's ability to continue repaying loans. Generally, loan modification will hurt your credit. It should only be considered if you cannot feasibly continue meeting your monthly payments as they currently stand.

Loan Term Modification

Before taking any drastic steps, start by contacting your current lender to see if there is an option for you to modify your loan terms directly. You will likely have to describe the financial hardship you are facing. If your loan has already gone delinquent, then the lender will be less likely to assist you. However, if you are proactive, have consistently made your payments, and have verification of your hardship, you may find a cooperative lender. This is especially true in a recession when joblessness is high. Lenders would rather work with you to solve the problem than have you default or declare bankruptcy.

Loan Refinance

There are a number of different options to modify your loan with a source other than your current lender. A loan refinance allows you to pay off your current debt with a new loan. The new lender gives you a better interest rate or lower payments. You then take this loan and pay off your current debt. This is a better option for people who have improved their credit score than for people who have lost financial standing. On the other hand, you may even be willing to take a higher interest rate on the new loan in order to reduce your monthly payments.

Loan Settlement

Instead of strictly refinancing the loan, you may consider debt settlement. This option will hurt your credit score more, because you will not be paying the full amount you agreed to pay when you signed your original loan contract. You will take a new loan from a different lender for a smaller amount than you currently owe your existing lender. If you negotiate properly, your current lender will be willing to take this lump-sum payment in order to cancel your debt entirely. Most lenders will only consider this option if they think you have a high chance of totally defaulting on the loan, leaving them with nothing. The settlement is better than nothing, and they may consider the offer.

Loan Consolidation

If you have multiple loans you cannot afford, then consolidation may be the best option for you. Consolidation is a mix of settling and refinancing. Your consolidation lender will help you negotiate smaller payoff sums for each lender, and then the consolidation lender will give you the funds to meet all of the payoffs. You will begin paying only one lender each month. While this monthly bill will be high, it should be lower than the sum of all the payments you were making to your previous lenders. Hopefully, it will also have a better interest rate or terms.

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