Handling Too Much Debt

Debt. Just hearing the word can make the hair stand up on the back of your neck! And for those who are handling too much debt, it is a four-letter word. Oftentimes, situations can get beyond our control: uninsured medical bills, major illness, marriage, divorce, children, college education, a loss of a business, disability, unemployment, or some type of natural disaster, or just spending more than we could make. The one common thread is that all of these life events lead to debt. The natural reaction is to bury your head in the sand and hide, but you will usually be offered help if you genuinely try to correct the situation.

Take Responsibility

The most important step to take is to talk directly to your creditors. Creditors really want to be paid and to keep you as a customer. This can work in your favor. Legally, as soon as you default on a debt, which is making a late payment, the creditor has the right to ask you to repay the entire debt. That rarely happens, because the creditor is interested in building a relationship with you and selling more products or services. Most creditors will listen if you ask for help in structuring a new repayment plan. An example of this would be an extension or a reduction in your payment.

Get Outside Help

If you have made an attempt to work directly with a creditor and have had no ability to resolve the situation you will need some outside help. There are several agencies that are good at resolving these types of situations. The ones I prefer are Take Charge America and Consumer Credit Counseling Service (CCCS). These are non-profit organizations, supported partially by the credit card companies, which act as a liaison for you and your lenders. They will set up a workable repayment plan and assist you in the process. (Canadians, check out Credit Counselling Canada / Conseil de Credit du Canada), which is a national association of not-for-profit credit counseling agencies and Orderly Payment of Debt programs from all across Canada.)

The most important consideration is to use an agency that is non-profit and who understands what you can feasibly pay and not set you up in an unrealistic repayment schedule. Remember that sticking to the plan is vital for two basic reasons: the first one is that you build good faith in demonstrating that you are willing to do what you say. The second is that it will improve your credit rating over time.

A mediator is a third party individual (often a lawyer) who charges a fee, and will negotiate some type of settlement or repayment schedule. This is a popular way to resolve your credit problems. They have no ability to force either side to settle but often knowing what to say makes the settlement process happen.

An arbitrationist is someone who will arbitrate or argue and settle for you for some type of fee. Oftentimes this will not make the credit card companies very happy because they are settling for pennies on the dollar. You are both bound by the settlement agreement and there is no renegotiation after that agreement has been made. These types of agreements although completely legal, are sometimes viewed upon as unfavorable by the lenders or creditors. They may report the information on your credit report as an "arbitrage settlement" which could alter your credit rating for a period of time. On the other hand, the creditors can agree upon the settlement and there may be no adverse affect on your credit score after the arbitrage agreement is satisfied.

Keep Accurate Records

Whenever you begin this process of counseling and repayment, always get the name and extension of whomever you speak to. Creating a paper trail is vitally important – especially if you are contemplating legal recourse. Without the paperwork it is virtually impossible to name anyone in a lawsuit. Face it; no lawyer will take a case they cannot win, especially if their fee is based on winning the settlement.

Deal with Your Bill Collectors

A last resort for any creditor (other than suing you) is to hand over your debt to a collection agency. Do not ignore these people. They are not interested in keeping you as a customer and are paid for results, i.e., collecting the money that you owe, and they will be relentless in their pursuits including calling you at work, home, and anywhere else they can get you. Their only goal is to recoup as much debt as they possibly can.

Your Rights as a Consumer

In the United States, bill collectors are restricted by the Fair Debt Collection Practices Act, which applies to everyone who collects consumer debt for someone else, including attorneys. (In Canada, debt collection legislation is under provincial jurisdiction, so varies slightly from province to province. Some of the rights are similar to those below for Americans. For details, check with your provincial government.) Some of your rights include:

Let's face it, if you are in the situation were collection agencies are calling you, you need to take immediate action. Most lenders and creditors are more than willing to work with you when you are proactive and take action. It builds your creditability. Lenders understand that many people can fall on hard times.

When you opt not to act, then your problems are only compounded. Many creditors are not willing to assist you and can either bring legal action against you or contract a collection agency to attempt to get their money. Ultimately, your credit rating is severely damaged and it can take years to correct the problems and get your credit rating back up to the quality that will enable you to get the best available lending rate. If you need to seek professional help, don't delay in getting the guidance you need to resolve your situation.

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