Debts can either be secured or not. Most secured debts are tied to an asset, like your car or house for a car loan or a mortgage. If you stop making payments, the lender has the right to take your car or house. Unsecured debts are those that aren't tied to any property. They include most credit card debt, medical bills, signature loans, and debts for other services.
Most car loan agreements say that if you fall behind on payments, the lender can take your car back. No warning is needed. If your car is repossessed, you may have to pay the loan balance as well as towing and storage fees to get it back. If you can't do this, the creditor might sell the car. If you think you're going to go into default, you might be better off selling the car yourself and paying off the debt. That way, you won't have to deal with the extra costs of repossession and a bad mark on your credit report.
If you fall behind on your mortgage payments, contact your lender right away to keep your home from being taken away. Most lenders will work with you if they think you're being honest and the problem is only temporary. Some lenders might cut your payments or stop them for a short time. But when you go back to making regular payments, you may have to pay more to cover what you owe. Other lenders might be willing to change the terms of the mortgage by extending the time it takes to pay it back, which would lower the monthly payment. Ask if there will be extra fees for these changes, and figure out how much they will add up to over time.
If you and your lender can't come up with a plan, contact a housing counselling agency. Some agencies only help homeowners with FHA mortgages with counselling, but many help any homeowner who is having trouble making mortgage payments for free. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help finding a legitimate housing counselling agency near you.
If you consolidate your debt with a second mortgage or a home equity line of credit, you may be able to lower your cost of credit. Remember that you have to put up your home as collateral for these loans. You could lose your home if you can't make the payments or if you pay late.
Also, consolidation loans can cost a lot of money. You may have to pay "points" on top of the interest. One point is equal to one percent of the amount you borrow. Still, these loans may offer tax benefits that you can't get with other types of credit.
