5 Tips to Avoid a Second Default

If you have defaulted on a previous loan, then avoiding a second default is crucial. Two defaults of any type will be detrimental to your credit report; in particular, defaulting on two mortgages will generally prevent you from securing another mortgage in the future. Consider these tips to avoid default:

  1. Create a budget. It sounds simple, but most of us do not budget our money. Start by tracking every expense, including cash, for 6 months. From there, eliminate unnecessary expenses in the future.
  2. Set up automatic payments. This way, even if you are out of town, sick or just forgetful, your bills will be paid.
  3. Set up overdraft protection. When your bills are paid automatically, overdrawing your account is a risk. Overdraft protection will make sure your check does not bounce.
  4. Contact a lender preemptively if you are going to miss a payment or be late. Your lender will likely grant you some type of extension if you contact them in advance and have a reason for the financial shortcoming.
  5. Do not ignore a collections call. Even if you think your debts are paid, an old bill can come back to haunt you. Respond to any attempt to collect by verifying the debt and paying what is owed.
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