Bad Credit and Can't Make Payments? Don't Ignore the Problem

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Debt is a growing problem for American consumers. In 2004 alone, more than 1.5 million consumers filed for bankruptcy. If you have bad credit and are having trouble making your mortgage payments, another loan may not be your first option.

Getting into a home loan with bad credit can be problematic. If you now find yourself in the home you wanted but are having difficulty making your payments, don't let the walls close in too far before you start taking action.

Lenders Will Work With You

Most lenders have a "workout" program they can use to help you get back on your feet. After all, it costs the lender a great deal of money to foreclose on a property -- anywhere from $40,000 to $60,000 per home. Working with the lender gives both parties the chance to bring about a favorable conclusion.

Explore Debt Options Carefully

Whether you've lost your job, faced unexpected medical expenses, or some other emergency in your life has occurred, you are not without options. Most advisors feel that bankruptcy should be a last resort. Consider working with a credit counseling service. The counselor can act as mediator and help you negotiate payment options that allow you to keep your home.

Another Home Loan?

Be extremely cautious of second mortgages. Another home loan might help, but it might make things worse. Some loans might offer low monthly payments now, but incredible interest rates and higher payments later. Says Keith Gumbinger of HSH Associates, a financial publisher based in New Jersey, "It's safe to say that some of the mortgages today are the foreclosures of tomorrow."

This doesn't mean that a second mortgage might not be an ideal solution for you, but make sure you fully understand the terms of the loan first. Take into consideration where you are now and what options you might be facing in the next few years. Bad credit is one thing, but losing your home would be devastating.

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