Household
Hints & HELP!
Protect
Credit Ratings with Proper Debt Management
submitted
by Lorene Bartos, Extension Educator
This article appears in the January 23,
2005 Lincoln Journal Star Newspaper.
Whether
a sudden crisis, losing a job or just an income shortfall,
many people reach a point where they don't have the resources
to pay all their bills. When that happens, knowing how to
negotiate with creditors is crucial to surviving the financial
pinch. Bad credit can stay on record for seven years, decreasing
chances of getting loans, employment or housing.
Before
all else, take care of basic needs like food, rent and utilities.
If child support is available and income has dropped significantly,
consider asking the court to change the support amount.
When
facing piles of bills, consider which are the longest overdue,
whose services might be needed soonest and who is likely
to be patient.
Consider
possible ways of managing debt crises. Possible solutions
include: spending money only on the bare necessities, using
all extra money for debt repayment; cut all living expenses
including credit payments and renegotiate the credit payments
to free up extra cash for necessities and extra payments
on debts; look for more income by having someone take on
a part-time job or selling something; use only cash
no credit cards until current debts are repaid.
To
be able to negotiate a repayment plan with creditors, communicate
the situation to them early. Portraying cooperation and
reliability makes creditors more willing to work out a feasible
plan. If bills receive no response, creditors will worry
they won't be repaid and often turn the matter over to a
collection agency, which is less likely to strike a deal.
Try
negotiating with a creditor first through letters, followed
by phone conversations and then personal meetings. In writing,
it is easier to organize thoughts, keep records, choose
effective words and make sure all important points are included.
Also, it eliminates having to consider matters on the spur
of the moment or face intimidating personalities.
In
dealing with creditors, be polite no matter how the creditor
is behaving. Some creditors use rude behavior to trap customers
into saying something foolish. Always have a specific payment
amount ready to tell the creditor. Many would rather have
a guaranteed small amount than a promised larger one that
never arrives.
Only
promise affordable payments. If after negotiation the payment
still cannot be made, the creditor will be less likely to
cooperate a second time. It is best to arrange monthly payments,
which require less paperwork than weekly ones but are still
on a regular schedule. A formal contract composed by a lawyer
is not needed, just an action plan both parties agree to,
but put the action plan in writing and send it directly
to the person you negotiated with.
Another
option is arranging for payments to be automatically deducted
from each paycheck at a regular job.
When
creditors are leery of cooperating with a repayment plan,
a penalty clause might help make the arrangement more acceptable
to them. In this agreement, if the payment is not made by
a certain date, a penalty fee is added. This arrangement
can be risky, so consider adding terms such as a 10-day
grace period before the fee is added or exceptions for emergency
situations.
As
long as creditors are assured of some sort of repayment,
most won't take a debtor to court because of the expense
involved. If debtors don't own a home, are unemployed, don't
have money in the bank and have possessions of low worth,
they can't be forced to pay. Certain laws also limit the
amount of property and wages a creditor can take. See a
lawyer to determine how specific situations would be treated
under the law.
Should
debt collectors become abusive or oppressive, lie, threaten
or commit other unfair practices, the 1978 Fair Debt Collection
Practices Act allows those being harassed to sue collectors
for up to $1,000 as well as actual damages, court costs
and attorney fees. This law applies to any personal, family
or household debt and covers debt collectors who regularly
collect debts for others, not the creditors themselves or
their lawyers.
Debt
consolidation loans may seem convenient, but they often
end up costing more than paying off the smaller debts. Instead,
Consumer Credit Counseling Services is a nonprofit agency
that can help consumers work out repayment plans with most
creditors. CCCS can be contacted in Omaha at (402) 345-3110
or Lincoln at (402) 484-7200.
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