Ideally, after a loan is taken out, you will see the principal, or balance, continue to drop as you make payments. Unfortunately, for some individuals going through financial difficulties, this is not always the case. Interest that builds up on these loans can be significant. It may get to the point where the interest alone can not be paid, let alone being able to pay down the balance. If the interest cannot be paid, the difference will be added to the balance of the loan. The following are some of the dangers of this "accrued interest."
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Affects credit score - Financial difficulty and perceived irresponsibility will be reflected in a credit score. Large balances on loans that are going unpaid will cause a credit score to quickly drop. Accrued interest and credit scores do not mesh well.
Possibility of losing property/home - Mortgages that are defaulted upon may result in foreclosure. Accrued interest is often associated with mortgages because the amount of interest is so high.
High monthly payments - The math on monthly payments after accrued interest does not work in the favor of the debtor. Money added to the principal of the loan means the balance is raised, and therefore the amount of interest is even higher.
Bankruptcy - Sometimes the typical financial solutions are not enough to recover from high debts. Those struggling to make payments, especially in multiple areas, may be at a point at which they can not recover. Chapter 7 bankruptcy can relieve many of these debts completely, and other forms of bankruptcy, such as Chapter 11, can make them more manageable. Although bankruptcy may adversely affect some other aspects of life for the time being, it may be the right option for individuals to move forward.
For many people, dealing with overwhelming debt can lead to feelings of frustration, desperation, and fear. It is important to remember that bankruptcy can be a valuable tool for individuals who are stuck in dire financial constraints. In fact, consulting with an experienced bankruptcy lawyer may allow for better and faster resolution of your problems, and may allow you to emerge debt-free in a matter of years, rather than have to live with the consequences for life.
Is Bankruptcy Right For You? Talk to Bankruptcy Attorneys Free and Confidential. Licensed bankruptcy attorneys are available. Attorneys will call you to discuss your case for free. Find out if bankruptcy is right for your situation.
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