The most important part of your financial stability is your credit score. You use credit for everything in your life, including cars, credit cards, furniture, student loans, college tuition, and, most importantly, the purchase of your home. If you have bad credit, it can affect whether or not you get more credit. In today's market, it can even affect how much your car insurance costs or whether or not you get the job of your dreams.
Having a bad credit score is the least of your worries if you're one of the many people who have had credit problems and had their car taken away.
Repossession of your home, car, or any other type of collateral can hurt your credit rating and score in a big way. In reality, the process starts as soon as you miss your first payment, because the creditor will tell one or more of the major credit reporting agencies about your payment history. Every time you miss a payment, the creditor will report you again. This will keep happening until the creditor decides to take the collateral to pay off your debt.
Of course, lenders are less likely to take your house and are more likely to be willing to work with you, but they won't think twice about taking your car. The worst part is that they usually do it in the middle of the night while you are sleeping or at your place of business, so you can't get to work or get home.
Keep in mind that in most states, your payments have to be late for at least two months before a creditor can take possession. This gives you plenty of time to work out a plan with the creditor if you're having trouble. If the problem is temporary, you may be able to get a payment deferment, but if it's a longer-term problem, you may want to talk to a debt management counsellor to work out a payment plan with the creditor.
Even though the creditor may still choose to tell the credit bureaus about this, it will hurt your credit far less than a repossession or bankruptcy. You have to be careful with debt management, though, and make sure you choose a reputable company. Your creditor is not required to accept the payment plan, so if you don't pay, whether it's your fault or the debt management counselor's, the creditor will cancel the agreement and ask for full payment or the return of the collateral.
Even though emergencies happen, you can avoid having your car repossessed if you only take on loan payments you can afford. It's easy to get stuck in a situation where your payments are too high and you can't pay for an emergency without delaying payment on one or more of your loans. The best way to stay out of debt is to make a budget and know ahead of time what you can and cannot afford.
