DEEP
IN DEBT?
Having trouble paying your bills? Getting past due notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?
You're not alone.
Many people face financial crisis at some time
in their lives. Whether the crisis is caused by personal or family illness, the loss of a
job, or simple overspending, it can seem overwhelming, but often can be overcome.
The fact
of the matter is that your financial situation doesn't have to go from bad to worse.
If you or someone you know is in financial hot water, consider
these options: realistic budgeting, credit counseling from a reputable organization, debt
consolidation, or bankruptcy. How do you know which will work best for you?
It depends on
your level of debt, your level of discipline, and your prospects for the future.
SELF
HELP
Develop a Budget
The first step toward taking control of your financial situation is
to do a realistic assessment of how much money comes in and how much money you spend.
Start by listing your income from all sources. Then, list your "fixed" expenses
— those that are the same each month — such as your mortgage payments or your
rent, car payments, or insurance premiums. Next, list the expenses that vary, such as
entertainment, recreation, or clothing. Writing down all your expenses — even those
that seem insignificant — is a helpful way to track your spending patterns, identify
the expenses that are necessary, and prioritize the rest. The goal is to make sure you can
make ends meet on the basics: housing, food, health care, insurance, and education.
Your public library has information about budgeting and money management techniques. Low cost budget counseling services that can help you analyze your income and expenses and develop budget and spending plans also are available in most communities. Check your Yellow Pages or contact your local bank or consumer protection office for information about them. In addition, many universities, military bases, credit unions, and housing authorities operate nonprofit counseling programs.
See
our Web Site on What is
a Budget.
Contact Your Creditors
Contact your creditors immediately if you are having trouble
making ends meet. Tell them why it's difficult for you, and try to work out a modified
payment plan that reduces your payments to a more manageable level. Don't wait until your
accounts have been turned over to a debt collector. At that point, the creditors have
given up on you.
Deal with Debt Collectors
The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or at work if the collector knows that your employer doesn't approve of the calls. Collectors may not harass you, make false statements, or use unfair practices when they try to collect a debt. Debt collectors must honor a written request from you to cease further contact.
See
our Web Site on Fair
Debt Collection Practices.
CREDIT
COUNSELING
If you aren't disciplined enough to create a workable budget and
stick to it, can't work out a repayment plan with your creditors, or can't keep track of
mounting bills, consider contacting a credit counseling service. Your creditors may be
willing to accept reduced payments if you enter a debt repayment plan with a reputable
organization. In these plans, you deposit money each month with the credit counseling
service. Your deposits are used to pay your creditors according to a payment schedule
developed by the counselor. As part of the repayment plan, you may have to agree not to
apply for — or use — any additional credit while you're participating in the
program.
A successful repayment plan requires you to make regular, timely
payments, and could take 48 months or longer to complete. Ask the credit counseling
service for an estimate of the time it will take to complete the plan. Some credit
counseling services charge little or nothing for managing the plan; others charge a
monthly fee that could add up to a significant charge over time. Some credit counseling
services are funded, in part, by contributions from creditors.
While a debt repayment plan can eliminate much of the stress
that comes from dealing with creditors and overdue bills, it does not mean you can forget
about your debts. You still are responsible for paying any creditors whose debts are not
included in the plan. You are responsible for reviewing monthly statements from your
creditors to make sure your payments have been received. If your repayment plan depends on
your creditors agreeing to lower or eliminate interest and finance charges, or waive late
fees, you are responsible for making sure these concessions are reflected on your
statements.
A debt repayment plan does not erase your credit history. Under the Fair Credit Reporting Act, accurate information about your accounts can stay on your credit report for up to seven years. In addition, your creditors will continue to report information about accounts that are handled through a debt repayment plan. For example, creditors may report that an account is in financial counseling, that payments may have been late or missed altogether, or that there are write-offs or other concessions. A demonstrated pattern of timely payments will help you obtain credit in the future.
See
our Web Site on Choosing
a Credit Counselor.
For the nearest office of Consumer Credit Counseling
Service, call 800-388-2227 or check their web site at www.nfcc.org.
Genus Credit Management works only with unsecured debt in
amounts exceeding $2,000, their Web site is www.genus.org
or call 888-436-8715.
Auto and Home Loans
Debt repayment plans usually cover unsecured debt.
Your auto and
home loan, which are considered secured debt, may not be included. You must continue to
make payments to these creditors directly.
Most automobile financing agreements allow a creditor to
repossess your car any time you're in default. No notice is required.
If your car is
repossessed, you may have to pay the full balance due on the loan, as well as towing and
storage costs, to get it back. If you can't do this, the creditor may sell the car.
If you
see default approaching, you may be better off selling the car yourself and paying off the
debt: You would avoid the added costs of repossession and a negative entry on your credit
report. See our web site on VEHICLE
REPOSSESSION.
If you fall behind on your mortgage, contact your lender
immediately to avoid foreclosure. Most lenders are willing to work with you if they
believe you're acting in good faith and the situation is temporary. Some lenders may
reduce or suspend your payments for a short time. When you resume regular payments,
though, you may have to pay an additional amount toward the past due total.
Other lenders
may agree to change the terms of the mortgage by extending the repayment period to reduce
the monthly debt. Ask whether additional fees would be assessed for these changes, and
calculate how much they total in the long term.
If you and your lender cannot work out a plan, contact a housing
counseling agency. Some agencies limit their counseling services to homeowners with FHA
mortgages, but many offer free help to any homeowner who's having trouble making mortgage
payments. Call the local office of the Department of Housing and Urban Development or the
housing authority in your state, city, or county for help in finding a housing counseling
agency near you.
DEBT
CONSOLIDATION
You may be able to lower your cost of credit by consolidating
your debt through a second mortgage or a home equity line of credit. Think carefully
before taking this on. These loans require your home as collateral. If you can't make the
payments — or if the payments are late — you could lose your home.
The costs of these consolidation loans can add up. In addition
to interest on the loan, you pay "points." Typically, one point is equal to one
percent of the amount you borrow. Still, these loans may provide certain tax advantages
that are not available with other kinds of credit.
DAMAGE
CONTROL
Turning to a business that offers help in solving debt problems
may seem like a reasonable solution when your bills become unmanageable. Be cautious.
Before you do business with any company, check it out with your local consumer protection
agency or the Better Business Bureau in the company's location.
Some businesses that offer debt counseling and reorganization
plans may charge high fees and fail to follow through on the services they sell.
Others
may misrepresent the terms of a debt consolidation loan, failing either to explain certain
costs or to mention that you're signing over your home as collateral. Businesses
advertising voluntary debt reorganization plans may not explain that the plan is a Chapter
13 bankruptcy, tell you everything that's involved, or help you through what can be a
complex and lengthy legal process.
In addition, some companies guarantee you a loan if you pay a
fee in advance. The fee may range from $100 to several hundred dollars.
Resist the
temptation to follow up on advance-fee loan guarantees. They may be illegal. Many
legitimate creditors offer extensions of credit through telemarketing and require an
application or appraisal fee in advance. But legitimate creditors never guarantee that the
consumer will get the loan — or even represent that it is likely. Under the federal
Telemarketing Sales Rule, a seller or telemarketer who guarantees or represents a high
likelihood of your getting a loan or some other extension of credit may not ask for or
receive payment until you've received the loan.
You should also avoid credit repair clinics.
Companies coast to
coast appeal to consumers with poor credit histories, promising to clean up credit reports
for a fee. They don't deliver. What's more, they can't deliver: They can't do anything for
you that you can't do for yourself. After you pay them hundreds — or even thousands
— of dollars in up-front fees, they can do nothing to improve your credit report.
Indeed, many simply vanish with your money. Only time and a conscientious effort to repay
your debts will improve your credit report.
If you're thinking about getting help to stabilize your
financial situation, be cautious.
-
Find out what services the business provides and what it costs.
-
Check out any company with your local consumer protection office and the Better Business Bureau in the company's location. They may be able to tell you whether other consumers have registered complaints about the business.
