The Consequences of Not Paying the Bills

The unemployment rate in 43 states has hit records, Nevada and Michigan the two top at 28.2% and 22.7% respectively, and extended stay-at-home orders have created a wave of financial uncertainty, leading to millions of households falling behind on monthly bills. Three million auto loans are in “hardship” status, and the national delinquency rate for mortgages in April is beyond anything that hit during the Great Depression in the 1930’s. Borrowers are working with their lenders to get grace periods and other offers while lenders work with big banks who are working with the Federal Reserve, and at some point it’s all going to hit critical mass.

For borrowers, there are long term consequences for decisions being made today. “One of the problems is they get what’s called ‘forbearance’ put on their credit report, so the long term effect is that it could affect your credit, and in the future, while trying to get a job, with so many people unemployed, it could affect that,” says STA Wealth Management President Michael Smith.The lenders are better positioned, because Uncle Sam keeps digging into his pocket and bailing them out. “However, what we’ve seen with the central banks and the Federal Reserve, they tend to bail them out.So ultimately the long term consequence will be paid by us, the taxpayer.”

The FDIC has provided this Q&A guide for homeowners falling behind on mortgages.

photo courtesy of Getty Images

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