How to Reduce the Risk of Liquidation

How to Reduce the Risk of Liquidation

How to Reduce the Risk of Liquidation? Finding yourself overburdened with debt can be an incredibly stressful situation. As balances continue to pile up and minimum payments become less and less affordable, the threat of your creditors forcing liquidation looms large. Liquidation is when a lender repossesses and sells your assets to recoup the money you owe. Clearly, this is an outcome you’ll want to avoid at all costs.

The good news is that with a proactive approach, you can take steps to significantly reduce the risk of liquidation. This involves both managing your current finances and negotiating with creditors for alternative repayment solutions. It may require difficult lifestyle changes, but becoming debt-free down the road is well worth some sacrifices now.

Tackle Secured Debt First

Most experts agree that you should focus on paying down secured debt balances first. Secured debt refers to loans like mortgages, auto financing, boat loans and others that are tied to a specific asset you own. If you stop making payments on secured debt, the lender can seize the asset that acts as collateral.

For instance, if you default on your mortgage payments, the bank can begin the foreclosure process and eventually evict you from the home. If you fail to make car payments, the dealer or lender will repossess your vehicle. Since the risk of losing these big-ticket assets is so high with secured debts, it’s crucial to keep making on-time payments even when money is tight. Temporarily paying just the minimums on unsecured debts may be necessary to free up cash flow for the secured obligations.

Prioritize Mortgage and Auto Loans

Your mortgage and auto loans likely comprise the majority of your secured debt burden. Defaulting on these crucial obligations paves the quickest path to liquidation of your home and vehicle assets.

Make paying the mortgage and car notes your top priority each month. If needed, contact your lenders to explore options like loan modifications, temporary deferrals, or interest rate reductions to ease the payment amounts while you work on debt reduction. Even refinancing to lower rates and extend terms can help.

The goal is continuing payments on these essential assets and avoiding foreclosure or repossession at all costs. This may require lifestyle sacrifices in other areas temporarily. But it’s far better than losing your necessities.

Evaluate Other Secured Debts

Next, take a close look at other secured loans for assets like boats, trailers, ATVs, jewelry, and collectibles. While not as vital as housing and transportation, defaulting on these brings liquidation risk as well.

Determine if any of these assets can be sold to pay off the associated loans and increase cash flow. For instance, you may decide your family doesn’t fully utilize the boat anymore. Selling it allows you to eliminate the loan payment and avoid the lender seizing the boat later.

However, if an asset remains meaningful or useful, keep making regular payments. See if you can pay a bit extra each month to pay the loan down faster. Just staying current and open with communication goes a long way in preventing liquidation.

Open Communication with Creditors

Don’t stick your head in the sand and ignore calls or letters from creditors. Communication is key when facing financial hardship. Most legitimate creditors would much rather work out alternate payment arrangements than immediately send accounts to collection agencies. But they can only do this if you answer their calls and explain your situation.
Be honest about your decreased income or increased expenses leading to the payment struggles. Then you can discuss options like lowering minimum payments, changing due dates to coincide with your pay schedule or temporarily deferring payments. Creditors want to continue receiving some payment on what you owe, even if it’s not the full amount yet. So keeping that open dialogue makes liquidation the method of last resort for them.

Document Agreements

When you reach alternate repayment agreements with creditors, carefully document the details. Follow up any phone conversations with emails summarizing the new terms. This creates a written record of the plan you both can reference later.

Some key points to document include:

  • The specific time period for reduced payments
  • Exact payment amounts owed
  • Due dates for payments
  • Plan for eventually increasing payments
  • Impacts to interest rates or fees

Having this information documented protects you and ensures no confusion down the road. The creditor can’t claim you failed to uphold the agreement if you have written proof of the terms.

Report Any Harassment

While most creditors will work cooperatively with borrowers facing hardship, some may engage in predatory collection tactics like harassment or threats. Understand your rights under consumer protection laws like the Fair Debt Collection Practices Act.

You have the right to request ceased communication, dispute inaccurate information, and report unfair practices. If a creditor refuses to collaborate on alternate repayment plans reasonably, file complaints with government consumer agencies, state attorneys general, and the Consumer Financial Protection Bureau.

Documenting their illegal harassment also helps if you need to take legal action later to stop the behavior. Don’t tolerate intimidation or abuse when trying to address debts in good faith.

Pursue Professional Debt Settlement

If you have multiple high-balance accounts that are becoming unmanageable, debt settlement may be a smart avenue to pursue. This is when a professional negotiator works on your behalf to settle debt balances for less than what you originally owed. They leverage tactics like ceasing payments and letting accounts become delinquent (but not defaulted) to motivate creditors to accept reduced lump sum settlements.

The key benefit is eliminating a significant chunk of your total debt, which then makes the remaining balances much more affordable. Just be sure to use a reputable debt settlement company that follows ethical practices and keeps your best interests in mind. Moreover, beats the extensive harm to your finances and life from full-on liquidation.

Research Settlement Companies

With debt settlement being unregulated, plenty of scams exist that claim to negotiate deals but actually charge large upfront fees and deliver little results. Do your due diligence before hiring any company.

Check the qualifications of the specific negotiators who will work on your accounts. Look for certifications like being accredited by the International Association of Professional Debt Arbitrators (IAPDA).

Read online reviews and complaints with the Consumer Financial Protection Bureau and Better Business Bureau. Consult with your state consumer protection office about any regulatory actions against the company. Legitimate settlement firms have solid reputations and experience getting real savings for consumers.

Understand the Process

Reputable debt settlement takes time, often 12-48 months. The company first analyzes your debts and financial situation thoroughly. You’ll open a dedicated account to make monthly payments that accumulate settlement funds over time.

They’ll instruct you to cease payments to creditors so accounts become delinquent. This motivates creditors to eventually accept reasonable lump sum settlements to recoup losses. As accounts get settled, payments get redirected to remaining debts until everything is resolved.

Patience is necessary, but the eventual outcome is less debt and avoiding liquidation. Just be sure to adhere to the counselor’s advice throughout the process for the best results.

Liquidate Unnecessary Assets

Take an objective look at valuable assets you currently own clear of any loans, like a paid-off second car, rental property, boat, jewelry and so on. Consider liquidating these items to raise funds that can be used to pay down debts. This reduces balances owed and again makes you less of a liquidation risk in the eyes of creditors.

Try to avoid selling things with deep sentimental value or that you rely on for daily living and earning income. But if you can part with some of those “nice to haves” in exchange for greater financial stability, it may be worth it. Just remember any tax implications for assets sold at a profit.

Pick What to Sell Strategically

As you decide what unnecessary assets to liquidate, consider:

  • Fair market value – Get professional appraisals to understand what price you can realistically expect. This ensures you liquidate assets most efficiently.
  • Ease of selling – Items like jewelry, collectibles, artwork and small electronics may be easier to find buyers for than large assets like property or vehicles. Weigh what will be quickest to convert to cash.
  • Sentimental attachment – While you can replace most possessions later, items gifted by loved ones or holding special memories have deeper worth. Try liquidating other things first before parting with sentimental assets if possible.
  • Taxes – You may owe capital gains taxes on assets sold at a profit over original purchase price. Factor this into your expected cash proceeds.

By thoughtfully selecting items to liquidate, you can raise substantial funds quickly to knock down debt and avoid liquidation. Just be strategic about what goes and when.

Use Sale Proceeds for Debts

After liquidating unneeded assets, immediately put the sale proceeds toward debt balances. This directly reduces what you owe creditors and shows good faith efforts to satisfy debts.

If proceeds are significant, consider paying off entire smaller debt accounts first. This frees up those monthly payments to tackle larger balances. Or make extra lump sum payments on high-interest debts to pay them down faster.

Don’t let liquidated asset proceeds sit idle in your bank account. Continue communicating with creditors about the progress made in lowering balances from asset sales. Follow through until all debts are resolved or at least at more manageable levels.

Slash Discretionary Spending

One of the fastest ways to find room in your budget for debt payments is reducing unnecessary expenses. Make a list of all recurring costs that aren’t absolutely essential like dining out, entertainment, club memberships, and magazine subscriptions and so on. Get in the habit of avoiding these discretionary purchases whenever possible. Even small savings add up substantially over time.

Pack your lunch instead of going out. Host game nights at home rather than going to expensive venues. Limit vacations this year to local day trips. The more you can trim from flexible spending categories, the faster you can get out of debt. Think of this as a temporary measure until you’ve avoided liquidation and regained solid financial footing.

Evaluate Subscriptions and Memberships

Go through all your monthly and annual subscriptions and memberships. Which ones provide value equal to their cost? Gym memberships, cable TV packages, streaming services, book/music clubs, and product delivery services need to be scrutinized.

Make a list of all subscriptions ordered by price. Cancel the most expensive ones you can live without. See if cheaper alternatives exist, like switching from a premium to basic streaming plan. For memberships, use them more to justify the fees or cancel ones you rarely utilize.

Suspending small recurring charges adds up fast. Those savings can then be redirected to debt payments until your situation improves. Don’t indefinitely pay for things you don’t really need.

Limit Dining Out

Dining out is often where discretionary spending gets away from people. The costs of restaurant meals, especially with the whole family, eat up budgets quickly.

Try limiting dining out to once a week or only on special occasions. Research affordable neighborhood places with daily deals so you can still enjoy an occasional meal out without breaking the bank.

Most importantly, get comfortable prepping food at home. Make it a family activity. You can eat healthier while spending a fraction of what you do at restaurants. Pack lunches and make home-cooked dinners the new normal. Your wallet and waistline will thank you.

Relocate to Cheaper Housing

Housing costs typically represent a family’s largest monthly expense. If your current mortgage or rent overwhelms your income, moving to a smaller or less expensive home may be the best course. This frees up a large chunk of your budget to be redirected toward debt repayment.
Start researching affordable apartments or homes for sale in your area. Crunch the numbers to see how much less you would pay for housing with a move. There are likely more budget-friendly options available in commuting distance that makes good financial sense right now. Taking this step lets you stay afloat at minimal risk of liquidation.

Downsize Your Home

For homeowners, downsizing your residence can massively reduce housing costs. Move from a spacious single-family home to a smaller place with lower mortgage payments. Or consider renting out your current larger home and moving into an affordable apartment temporarily.

Crunch the numbers to determine savings from downsizing. Include costs like utilities too, not just the mortgage or rent. Interview real estate agents and mortgage lenders to understand your options. The equity from your current home can help cover moving costs and pay down debts.

Just be sure to time the housing transition strategically. You don’t want to be paying double housing costs during the moving process. Plan things out.

Seek Cheaper Rentals

Renters may consider relocating to a less expensive unit or complex. You can likely find comparable apartments for at least 10-20% less just by expanding your search area.

Consider factors like commute distance, amenities, square footage, and availability of public transportation. Look just outside your ideal area for hidden gems with lower rents. Use sites like RentHop or Zillow to compare costs of various listings easily.

A cheaper rental allows you to build savings for debt repayment and pursue home ownership again down the road. Having housing costs consume less of your income goes a long way in avoiding liquidation.

Increase Your Income

Bringing in more money each month directly enables you to pay down debts faster. Start by requesting a raise at your current job if you’ve taken on more responsibilities. Or if that’s not an option, seek out higher-paying job openings to apply to either as a replacement or supplemental income source.

Picking up a part-time second job is also a fast way to boost your earnings. Look for flexible gig work that allows you to set your schedule. Every extra dollar goes toward debt balances, moving you farther away from the liquidation danger zone. Once you’ve made significant progress, you can scale back the extra work. But for now, focus on earning the most possible.

Ask for a Raise

If you’ve been succeeding in your current role for some time, leverage that to request a salary bump from your employer. Prepare by gathering data on average pay for your position in your geographic area. Point to your own contributions to the company and achievements.

Even a small 5-10% raise can make a noticeable difference in your take-home income. But don’t underestimate your worth either. If you have extensive experience and strong performance, acase for at least a 15-20% increase may be justified.

The worst your employer can say is no. But you might be surprised at their willingness to reward loyal employees who ask. Don’t leave money on the table if you deserve higher pay.

Search for Better Opportunities

Don’t assume you have to stay stuck in your current job if meaningful raises aren’t an option. Brush off your resume and start looking around at openings with other companies. Leverage job search sites like Indeed, Glassdoor and LinkedIn.

Look for roles that align with your skillset but offer 10-30% higher compensation than your current pay. Weigh factors like job duties, work schedule, benefits and commute as well. Don’t jump at the first ad with a bigger salary. Find the right overall fit.

With some strategic networking, interview practice and smart negotiations, you can land a much better paying job. Making this move quickly boosts your income potential.

Pick Up Side Gigs

Supplementing your current job with part-time work is a flexible way to generate additional earnings without the commitment of a second regular job. Options like ride sharing, food delivery, tutoring, freelancing, manual labor and participating in the sharing economy allow you to work just evenings and weekends.

Evaluate your unique skills and interests to determine the best gig work for you. Retirees may enjoy ride-sharing, teachers can tutor, and creatives can freelance in areas like writing or design. The right opportunity exists that aligns with your abilities.

The key is consistently dedicating some of your free time to extra work until you’ve paid down debt. Avoid burn out by balancing it with self-care activities too. The side income goes a long way.

Prioritize Must-Pay Bills

Be sure to pay essential monthly expenses like rent/mortgage, utilities, groceries and transportation first when funds are limited. Having electricity shut off or an eviction on your record only worsens financial outcomes. Contact providers about assistance programs or payment plans if needed.

Creditors should understand if minimum payments temporarily take a back seat to basic necessities. Remind them you are showing good faith by keeping current on costs critical for living and working. With this strategic prioritization, you buy some time before they would proceed with liquidation. Keep them updated on your progress.

Always Pay Housing Costs

Your housing payments of rent or mortgage should be your top priority each month. Being evicted or foreclosed on leads to much greater financial and personal disruption than being delinquent on unsecured debts.

If needed, contact your landlord or mortgage lender immediately about hardship assistance. There may be options to temporarily defer or reduce payments, change due dates or modify your lease/loan until you regain stability. Avoid assuming you’ll get denied – ask about help.

Doing everything possible to stay current on housing payments keeps a roof over your head and major derogatory marks off your credit history. This allows time to address other debts without the threat of liquidation looming.

Maintain Utilities

While it’s obviously critical to keep water, electricity, gas and other utilities on for health and safety, lapses in payment here also hurt your credit and rental history. Utility companies report non-payment to credit bureaus. Landlords often require keeping accounts current.

Call providers right away if you anticipate struggles with utility bills. See if they offer reduced rates, alternate due dates or deferred payment plans for hardship situations. Local non-profits may also have support funds to help cover costs.

Letting utilities get cut off creates bigger problems. Maintain these obligations, again buying time to tackle debts without your necessities being at risk.

Seek Credit Counseling

Non-profit credit counseling services offer personalized guidance for digging out of debt. A certified counselor collaborates with you to create a household budget that directs as much money toward debt repayment as possible. They can also negotiate alternate payment arrangements with creditors on your behalf.
The credit counselor essentially quarterbacks your entire debt payoff plan. This helps ensure payments are optimized, creditors remain satisfied, and the risk of liquidation stays low. Reputable agencies charge small fees or sometimes even provide services for free. Just be wary of scams parading as counselors. Vet them thoroughly first.

Stay Diligent

Above all, maintaining diligence and persistence is crucial when working your way out of heavy debt. Sticking to your budget, continuing open communication with creditors, and utilizing helpful resources prevents liquidation. With time and dedication, you can get your finances back in order. Stay focused on the light at the end of the tunnel. 

We Provide Professionals to Assist You

At Second Start Financial, we are dedicated to helping you regain control of your life. Our mission is to provide you with effective debt relief solutions that address your unique financial situation. With a team of committed debt specialists, we work tirelessly to deliver the results you need to move forward with confidence.

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