Been There
Being in debt beyond your ability to make payments is a horrible feeling! I know. I have experienced that.
Unless you call to negotiate a way to reduce payments and get back on track, you will start to hear from bill collectors. Some are pleasant but most are trying to intimidate.
I was able to see the back-room operations of a past due bill collection company when I got a part-time job as a collector of past due medical bills. The company worked on a percentage of bills collected, which is another reason for being pushy on the calls.
How Did You Get There?
There are multiple reasons why people get into that position. Some have a medical emergency with no health insurance. Some are hit hard with divorce obligations, which was part of my situation. Some are too busy shopping to realize how much was still unpaid on a credit card. And the list goes on.
The reality is that unpaid spending can only go on until minimum payments get beyond the amount you can afford to pay.
I have been busy posting about building a better mindset for money. However, I realized that some reading my blog might be in crisis mode! Since I can relate to that, I thought I should offer some hard-earned advice that might relieve some of your stress with some logical considerations that might be available to you.
Stop Digging Your Hole
You have been making some poor decisions to put you into this debt-ridden position. So stop adding to the mess! Stop using your credit cards. If that means stop making payments, then STOP!
Yes, you will start getting calls. But you need to face your facts and start planning to get out of this mess.
You have options which include getting a second job or trying to find a better-paying job.
However, your real problem is the spending. You need to look at your credit card statements to see what you bought or did that could have been prevented or delayed. Can some things be returned?
Making yourself aware of your spending mistakes will help you make better decisions going forward.
Is Bankruptcy an Option?
Yes and no. Bankruptcy laws have changed. See the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Those changes came about due to a rising number of bankruptcy filings and the growing concern for losses among lenders, especially credit card companies.
Without getting into details, the process has gotten more difficult than before, but not impossible. Consult an attorney if you think you need to file for bankruptcy.
Just pay attention to the long-term effects of the bankruptcy being reflected in your credit report for ten years! That will mean higher interest rates on loans, if you can get one. Although credit card companies know that you will not be able to file for bankruptcy again for the next ten years. That will allow them to get enough interest income off you to pay for the losses in your next filing, if you cannot change your habits and build a better mindset for money!
A better thought is that once you lose debt in bankruptcy, vow to never go into consumer debt again. Save and invest instead, paying in cash for everything!
Working with Collectors
Just because you get a call from a collector does not mean they should be your only contact to work out payments.
Collectors are employees, though some may be on commission or bonus for volume collected. But, mostly, they are hourly employees reporting to a boss, who has some negotiating latitude.
Even though you know you will take a hit on your credit score, you might try to get a reduction in your debt amount with a promise to pay over a reasonable period. If you can reach an agreement, get it in writing, perhaps as an attachment to an email, which you can verify with the original company owning the debt.
These are reasonable expectations that may not be available early in your contact process.
You are not in a respectable position so do not expect a lot of respect.
However, you do have rights. Collectors are ultimately responsible to the Federal Trade Commission (FTC.gov).
Know Your Rights with Debt Collectors
When a collector calls, stay calm and tell them to wait while you get a pen and paper. You need to collect information that will protect your rights and help you control your interaction with them.
You may not be very good at taking notes. But I guarantee you will get better with the second call!
The following are FTC recommendations to help them help you if you are abused:
- Confirm debt details to be able to verify they are calling about your debt.
- Make notes related to:
- The caller’s name.
- The company.
- The date and time of the call.
- The caller’s address.
- The caller’s phone number.
- The amount of the debt, per the caller’s data.
- To whom the amount is owed.
- Ask for instructions to dispute the amount of the debt.
- Rules for Collectors:
- Call only from 8 a.m. to 9 p.m.
- Cannot talk to others about your debt.
- Cannot harass you (curse or threaten action).
- Cannot lie to you.
- You can request they stop calling with a letter.
- Report violations to the FTC-ReportFraud.FTC.gov. Or call 1-877-382-4357.
- If you are sued, show up to protest or defend yourself OR the case will default as a win for them.
This is good information to help you stay calm in a stormy situation. Act with reason and you will get more cooperation as you try to climb out of the hole you dug for yourself. Make this a lesson to help you do better later!
Do Your Best—Time Will Help
The noise surrounding your situation can be unnerving. But having facts in mind will help to make a resolution possible.
Perhaps you will fail to negotiate a reduction in the amount owed and you may seek a service to help. Aside from their fees, you will realize a tax obligation. Any reduction in debt can be reported to the IRS on a Form 1099 –Miscellaneous Income. You will be responsible for paying taxes based on your tax rate.
You may find a way to consolidate your debt to reduce the payments. However, the debt must be paid. Please do NOT seek out other ways to get more credit. Pay off the old debt!
Whatever you work out, use time to build a better situation. A part-time job, with its inconvenience to your personal time, will help a great deal and it will give you less time to spend carelessly!
Work on a Better Mindset for Money
You can work through your mess!
While you spend those evenings saving money by not going out to eat and not doing other forms of entertainment that include shopping, you can do some reading about building a better mindset for money!
I suggest reading more of my blogs, of course. I will suggest other good sources, as well. Note, you are not the first person who had to learn about money because you failed at managing it. Some of us need an alert to know when we are heading in the wrong direction.
I hope you pay attention to your alerts!
Debt may seem like a tool to help you get things sooner than using cash. However, debt becomes a trap since we are likely to be given more credit than we can afford to pay back.
Debt costs in interest expense, which grows in the rate as your situation worsens. Then, the late payment fees can mount up quickly. The credit card company profits grow at your expense.
However, once you learn the value of paying with cash, you can start to see the greater benefit to you by saving to add interest income. Then, with the ability to cover emergencies with your savings, you will realize a sense of security.
With the growth of your savings, you will have the opportunity to invest. That will lead to compounded earnings which can multiply your investment returns over time. That is exciting stuff to read about and experience!
Pay your debt. Build a better mindset for money. Reap the reward!