The term debt-servicing debt refers to the monthly payments that companies make to individuals or entities who have defaulted on their debt.
But in many cases, they are far more than just debt payments.
The loans themselves often include an array of other obligations, from interest payments on mortgages to utility bills.
The more money you borrow, the greater the risk that the payments will go unpaid, leading to a higher default risk, and the greater your risk of default.
To make matters worse, borrowers often don’t know what to expect when they receive the payments, and they may end up paying more than they expect.
So it can be hard to make sure you’re paying the debt the way you think you should.
Debt-servicers may be able to lower your default risk by offering you the option to keep the payment, but that’s not always easy.
And while it’s easy to know when you’re in default, you may not know what your options are, because of the complexity of the payments themselves.
To find out more, we’ve created a list of 10 tips to help you make better decisions about debt-related payments.
Ask yourself: Will I actually need the payment?
Most people have a very hard time imagining what they might be paying for if they default on their debts, said Elizabeth R. Rutter, director of debt and payment at The Bancorp, an investment bank based in New York.
And yet, many of the people who default on debts default because they don’t think they should, she said.
“They think that it’s not a big deal, but when it comes time to pay it, they don [have any other options] because they’re afraid that they’ll get sued.”
Look at the repayment terms of the loans You can usually see that the interest rates and fees that are included in the loan are often higher than what you’re actually paying for.
For example, you’ll often see a variable monthly payment, which is a percentage of your monthly payment plus a set amount of interest per month, said Rutter.
But the interest will also vary based on how much the payments are, and how much they’re expected to pay in interest.
“That’s a variable that will fluctuate a lot,” she said, which could lead to you paying more interest than you should because you’re not paying enough.
Determine the amount you can afford If you’re unsure what you should pay, or what the repayment plan is for your debt, consider whether you can keep the payments if they are not paid, Rutter said.
If you don’t have a repayment plan, then you might not be able do anything about them, Rutters said.
Get advice on paying off your debt If you have debt that you have a hard time paying off, consider getting help from a professional debt-management firm, Ritters said.
The BAC, a consumer financial advice company in Boston, provides debt-assistance programs for low-income people, such as low-cost debt consolidation, student loan consolidation, and other debt consolidation options.
“The advice is to be able and willing to take on some debt,” she wrote in an email.
“This is really important to get a handle on the debt and its associated risks.”
For more information on how to manage debt and make payments, check out our article: “How To Get Out Of Debt.”
Consider whether you want to continue with the payments If you decide to continue the payments on your debt at all, Renders said, you might consider whether to keep paying the money even if the interest rate drops.
“If the interest drops, and you want the payments to continue, then there is still the issue of the payment being made,” Ritters wrote.
“So if you can get that down to a certain amount, that will keep you from being sued or having to pay more than you’re expected.
For further advice, check with your local debt-help agency. “
However, if you are expecting a much lower rate, then the payments can still continue.”
For further advice, check with your local debt-help agency.
Choose the right repayment plan If you are considering repayment, you should consider what you are paying for, Rids said.
You’ll want to consider how much you are making for each month of your debt payments, as well as whether you will be able pay off your remaining debts in the future.
Rids noted that in many states, repayment plans can be much more expensive than traditional debt consolidation.
“You may want to look at what you could pay down if you had to pay off the whole balance on a single payment,” she explained.
“A typical repayment plan would probably be $50 a month, or about $1,200 a year.”
Consider what you can offer in return If you offer a repayment or interest