For many people, this past year brought about financial difficulties they would have never dreamed they would have to deal with.
Gone are the days when a bad credit rating defined those who did not know how to manage their money or those who simply did not care.
As an experienced Credit Manager and Risk Analyst for over 25 years, let me be the first to tell you, I absolutely abhor "Bill Collectors". These people can be ruthless--and sadly, most are trained to intimidate at all cost. Personally, I disagree with such a tactic and have had the privilege of training collectors under my direction to use a gentle approach. I know I am not the only one who has. Nevertheless, if you receive calls from a collector, you will most likely be greeted with a hostile tone. Most collectors are paid commission and you can bet they will not hang up until they force you into making a commitment that will send you further into trouble.
If you find yourself in foreign territory when dealing with such people, I have some tips that might spare you such an experience. Perhaps you already have, and are currently putting your answering machine to good use. In any case, it's never to late to learn to have confidence in approaching your creditors by putting these tips to use.
WHEN YOU ARE PAST DUE 2 MONTHS
1. Make a list of all unsecured credit (credit cards), adding the current monthly minimums due.
2. Make a list of secured credit (vehicles, house payment) monthly minimums due.
3. Subtract the secured credit from your current income.
4. Add your living expenses--such as, food, utilities, car insurance, and medications together and subtract them from the balance after subtracting the secured credit.
(This can be discouraging, but trust me there is a purpose. You will need this information when you begin to work with your creditors, especially if your accounts are already 90 days past due and scheduled for charge off--which means the credit card companies are closing the account and sending it to a third party collection agency.)
After steps three and four are completed, you should have the total of remaining usable income.
Chances are you do not have enough to pay all of the minimum payments due on your unsecured credit. If your loss of income was temporary and has been restored to its normal level, you may only need a temporary solution in returning to a current status.
In this case, instead of stressing about the doubled minimum payments, call your credit card company immediately and tell them you had a temporary situation that has caused you to go past due and that you would like a repayment arrangement for the next three months. Most credit card companies will work with you by dividing the amount past due into three equal payments and they will stop the late fees from accruing on your account. In addition, this will keep them from reporting a negative on your credit report. Your account will remain in good standing with them, and you will have stopped collection calls from coming your way. Problem solved.
ACCOUNTS THAT ARE 90 DAYS AND IN COLLECTION STATUS
At this point, you have received several phone calls and threats. If you have yet to return phone calls, don't do it until you have followed all of the steps above--this time, looking at a long term solution and repayment plan. Do not let the collector bully you into making a commitment you cannot keep, and never give them your checking account number for auto deduction unless you can keep their proposed arrangement. This will only come back to haunt you later. Again, knowing what will work for you ahead of time is crucial:
Take your remaining usable income and divide it by the number of credit card bills you have--this being the amount you can send each creditor--now you can make contact with the company.
1. Write a letter to the credit card company or collection agency. State the reason for your delinquency. Be sure to tell them this is a permanent situation and you are contacting all your creditors to tell them you are committed to paying your debt and tell them the amount you are able to pay. Include your first payment with the letter. Conclude your letter by thanking them for their understanding and that by cashing your check; they are acknowledging acceptance of your repayment agreement. It is important that you state this in the letter as well as writing the following statement in the upper corner of the endorsement side of the check: "The endorsing party accepts the monthly repayment agreement of $______ per month".
2. Keep copies of your letter and each check you send. Some collection agencies will contact you and tell you this isn't enough and they will threaten to sue you. Do not be swayed by these threats. Even though they have the power to place a judgment against you, the courts will see your efforts and consistency in payments and will keep the monthly payments the same unless there is a change in your income.
3. If you choose to contact the collection agency by phone, be ready for them to do all they can to get more from you. Stand firm and tell them you can't give more than what your budget allows. You do not have to listen to their threats. Tell them you will mail the payment you proposed, say goodbye and end the conversation.
4. If you are receiving collection calls at your workplace, tell them they cannot contact you there, as it will jeopardize your employment. If they continue to call, tell them you will report them to the Better Business Bureau and follow through.
5. NEVER ignore a credit card company or collector. If you do, you are sure to have a judgment placed against you. At this point, the courts will not be as sympathetic and they have the power to approve a payroll deduction (Your entire paycheck less 25%) and/or a bank account freeze--which means any funds deposited will go directly to the creditor.
Going back to the list of expenditures, notice I did not include cell phones, cable, internet, or satellite. This is because these are things you should consider cutting out the moment you see trouble.
Do not be fooled by debt consolidation companies--these should be used with caution, if at all. Many will ask you to provide them with your budget, then tell you they can help you. They give you a figure before contacting any of your creditors and they charge you a fee for doing what you can do on your own. Check with the Better Business Bureau before using one of these companies.
If you find yourself in a crisis with little or no income, contact a bankruptcy lawyer and inquire about Chapter 13. This is a pre-approved repayment plan set up through the court and the law firm. Your lawyer will go over your debt to income ratio and work out a plan for you. You pay the trustee the agreed upon amount and the trustee will pay the creditors. This stops all collection calls, late fees, and collection fees. This remains on your credit report during the course of the repayment plan but is not viewed as negatively as a chapter 7, which is complete relief. A legitimate bankruptcy law firm will offer a free consultation.
Incidentally, this same process can be used in working out an arrangement with your mortgage company.
Being the first to make contact is the key to a peaceful and fruitful resolution with creditors.
Above all, do not let this situation define you. Keep moving forward, this too shall pass. Trust me, I am not only a collector, I am currently a collectee.
(C) Teresa Ortiz
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