Handling Debt and Credit Problems the Smart WayRemar Sutton, DCU StreetWise National Spokesperson
The news headlines have been telling the bad news for months: financial crisis, job losses, recession, record foreclosures. Millions of people have been affected financially by the current economic conditions. If you are facing debt or credit difficulties, how you handle matters to resolve the issues can make a big difference. This month's review provides some tips to help.
If you are facing difficulties, take prompt action.
At the first sign of financial difficulties, you should take immediate steps to get on the path to financial recovery. The earlier you start, the more options you have.
First of all, you need to determine where your money is going. So start a spreadsheet on your computer. Start by listing your income from all sources. Then list all of your monthly expenses no matter how small. Typical expenses include mortgage or rent, car payment, health insurance, utilities (water/sewer, electricity, gas, telephone, etc.), groceries, gasoline, credit card payments, and child care. How much do you spend on clothing, meals out, entertainment? Record your expenses for at least the past or present month; two or three most recent months' expenditures will give you an even better picture. This record helps you to track your spending patterns. It also helps you detail necessary and discretionary (optional) expenditures.
Next, make a budget for necessary expenses. You want to make sure that you can provide the basics — housing, food, health care, insurance, education — within your income. Include other necessary expenditures such as payments for car loans, credit card payments and other credit accounts or loans. How does this budget match up with your current monthly expenditures? Can you comfortably cut expenses down to this budget or do you need to make some allowance for other expenses?
Now, compare your monthly income with your new budget for total expenses. Do ends meet? If so, great. You may wish to give your new budget a try. If you can't make ends meet, even with the new streamlined budget, then it may be time to seek appropriate help. Is taking a second job a realistic option? In many areas and for many people, this may not be possible. At this point, you may benefit from consulting professional help.
We recommend first checking out DCU's Financial Wellness and Recovery program. The program offers many options and resources such as consolidation loans, financial counseling, temporary reduction in loan payments on your existing DCU loans, loan re-write or extension on an existing DCU loan, BALANCE financial fitness program, and more. We recommend that you start with DCU because they can provide or refer you to reputable and reliable services. This last is important because the “debt relief” field also attracts fraudulent businesses who target vulnerable consumers; more about this in a moment.
If debt collectors are already calling, know your rights.
If you have already fallen behind in one or more accounts, the businesses to which you owe money have probably begun to contact you by phone or mail. When pressed by money worries, it's tempting to ignore the letter or put the caller off. Not a good idea, experts say. At this point you may be able to work directly with the creditor to create a payment plan that reduces your payments to a more manageable level. That's also the time to seek help from reputable experts; as noted above, the DCU Financial Wellness and Recovery program may be able to help.
If an account is more than 90 days past due, a creditor may use a third-party collection agency to seek to collect the money owed. Because debt collection is a field where abuses can happen, it is important to understand that you as a debtor have the legal right to be treated fairly and without pressure or harassment. The Fair Debt Collection Practices Act (FDCPA) provides protections to consumers who are dealing with third-party debt collectors.
The FDCPA applies to personal, family, and household debts. These debts include money owed for a car purchase, medical care, or charge accounts. The FDCPA requires that debt collectors treat you fairly and prohibits them from engaging in unfair, deceptive, or abusive practices to collect these debts. The following is a summary of what debt collectors may and may not do.
If you have any problems with a debt collector, report them to your state Attorney General's office (find it at State and Local Government on the Net) and the Federal Trade Commission (FTC).
Avoid misleading or fraudulent debt repair “services”
Increasing financial problems have caused many more Americans to seek help for credit counseling and debt management. As noted earlier, working with a reputable credit counseling agency may be helpful. And your credit union or other financial institution may recommend reputable services in your region. (For more information on choosing a legitimate nonprofit credit counseling service, see from the Better Business Bureau Tips on Choosing a Credit Counseling Agency.)
However, like any vulnerability, increased debt problems have led to a surge in fraudulent debt repair businesses. Advertisements arrive via radio, TV, email and snail mail. Many entice potential victims with promises to “get rid of debt without cost to you” or “consolidate all your debts into one monthly payment without borrowing” and the like. At best such statements misrepresent what a company can do for you. At worst, the ads are just a come-on to get you to pay the companies up-front money (often big amounts) for “services” they never intend to do; their goal is to steal your money. Consumer complaints to government agencies about such fraudulent debt repair schemes has soared in the past year. You can protect yourself in several ways:
Remember, taking charge of debt before it takes charge of you can help you get successfully on the road to financial recovery.
For more information
Credit Difficulties in StreetWise's All About Credit section
Credit and Your Consumer Rights from the FTC
Debt Collection FAQs: A Guide for Consumers from the FTC
Knee Deep in Debt from the FTC
Tips on Choosing a Credit Counseling Agency from the Better Business Bureau
So, what do you think?
If you find this review helpful, please pass the word to your friends. Also email me* with any comments or suggestions.
Remar Sutton
Prepared by Remar Sutton and Associates for DCU, March 2009. All rights reserved.
* Please note that ordinary email is not secure. You should avoid including any sensitive personal or financial information. Contact DCU directly with specific questions concerning your account or membership.
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