Budget

• Reexamining the personal budget may help a borrower free up sufficient money to meet loan payments. This could involve cutting back on unnecessary spending or finding extra income, for example, by working overtime or selling possessions. It is important to avoid false economies: selling a car may raise a lot of money, but it could make it harder to find or keep a job.
  
  

Communication

• As most companies automate their credit process, it is important for borrowers to contact lenders when they fall into financial problems. This increases the possibility of reaching an agreement that staves off any legal process the company may initiate as a matter of policy when a borrower fails to meet repayment obligations without explanation.
  
  

Loan Alteration

• Lenders may take several steps to help borrowers in financial difficulty. One is to put some or all of the payments on hold for a certain period: the borrower still owes the cash but can pay it back later. Another option is to extend the loan period, meaning the monthly payments become more affordable, though this usually means the total repayment amount is higher because interest is applied over a longer period. A third possibility is for a lender to waive the interest for a period, meaning the borrower only has to pay back the principle on the loan during this period.
  
  

Consolidation and Refinancing

• Consolidation involves taking out one loan to pay off two or more existing loans. Refinancing involves taking out one loan under a more favorable arrangement to pay off one existing loan. The former is usually associated with unsecured debt, while the latter is associated with secured debt, for which a specific piece of property is collateral. In either case, borrowers will need to consider financing options from a range of lenders to find the best value. The total amount the borrower winds up paying will often be higher, even if the monthly payments are lower.
  
  

Bankruptcy

• Bankruptcy is a declaration by a court that a person is unable to repay his debts. It can follow an application by the debtor, or by a creditor. Bankruptcy means that the debts are considered discharged and no longer legally enforceable. The lender retains the right to seize property used as collateral on a secured loan.
  
  As part bankruptcy procedure, the debtor must surrender some or all assets, such as property and possessions. The court then sells these assets and distributes the proceeds among the creditors, usually in proportion to the outstanding loans. This surrender means bankruptcy should usually be a last resort.