Behind
on Credit Card Bills
by Gary
Foreman of The Dollar Stretcher
Dear
Dollar Stretcher,
My
husband and I have one credit card debt to the tune of about
$3500. I cancelled the account so we can't charge any more.
We have been making payments of $100 every month which is
well below the minimum that the credit card company requests.
They call nearly every day hounding us for the rest of
our minimum payment which has reached in the neighborhood of
$800 a month. Although
we are not paying what they request every month, we ARE making a
payment. Is there any way we can stop the phone calls?
Are we breaking the law by not paying the entire minimum
payment? We do plan
on making a large payment when we can, but with three kids and
one income, $800 is hard to come by.
Lisa
B.
Sounds like Lisa is in a tough
place. She's really asked three separate questions. What can she
do to stop the collection calls? Is falling behind illegal? And
what's the best way to get out of this situation?
According to the American
Bankers Association there's over $600 billion in bank card debt and
revolving credit outstanding. And a little more than 3% of the
bank card accounts are delinquent. That's about $18 billion owed
on past due accounts. So Lisa's got a lot of company.
Let's begin with the harassing
phone calls. The Fair Debt Collection Practices Act (FDCPA) is
designed to protect consumers from abusive, deceptive and unfair
treatment by debt collectors.
The law gives debtors certain
rights. For instance, if you don't think that you owe the money,
you have the right to dispute the debt. You must respond in
writing and do it within 30 days of receiving the letter from
the debt collector.
The phone calls can be stopped.
Just send a letter to the collection agency telling them to stop
contacting you. Once notified the collector can then only call
or write to inform you of action that they intend to take (i.e.
legal suit) or tell you that they intend to stop trying to
collect the debt.
She is allowed to hang up on a
debt collector. No law says that you have to speak with them.
Nor do you have to give them your phone number if they ask.
Debt collectors are not allowed
to call you at work. They're limited to calling between 8am and
9pm. They can't make threats or tell others about your
situation.
Any complaints about collection
practices should be directed to your state attorney general or
local consumer protection agency. You may also choose to send a
copy of your complaint to the FTC at: The Federal Trade
Commission, Washington, DC 20580
Lisa should not negotiate with
debt collectors by phone or in person. All communication should
be written. Respond to all of their requests by mail. Use
registered mail so you have proof that it was received. By
keeping copies of all correspondence she'll have a precise
record of what has happened.
It appears that Lisa missed a
very important step. When you're about to fall behind you need
to contact creditors immediately. Explain the situation and your
willingness to repay debts. They're more willing to listen if
you call before the bills become past due. They may customize a
repayment plan that you can afford. Remember, their goal is to
collect the money borrowed plus interest. If you propose a plan
that will get them paid back you've helped them achieve that
goal.
Now for the second question.
Yes, Lisa is breaking the law. She won't be taken away in
handcuffs. But she has made a contract with her credit card
company. Now she's not living up to that contract. Those charge
slips commit us to the payment plan of the card company. If the
situation goes on long enough, the creditor could force Lisa
into bankruptcy.
Already, the delinquency is
reflected in Lisa's credit history. That will make it more
expensive for them to borrow money in the future.
Finally, what can Lisa do to get
out of debt? First, she needs to use a budget. Then she needs to
raise extra money and be prepared to cut all unnecessary
expenses.
This is a good time to consider
any way that Lisa might have to raise funds. Consider a
part-time job. If they own their residence, a home equity loan
might be a way to make the debt more manageable.
Unnecessary expenses need to be
slashed. And 'unnecessary' should be defined as anything that's
not absolutely essential to surviving until the crisis is
passed. For, indeed, this is a financial crisis.
Lisa's $100 per month isn't
enough to get the debt paid off. At 22% annual interest (and it
could well be higher) it would take her 6 years to pay off the
debt.
But it might take longer.
According to Bankrate.com
all of the ten largest card issuers have increased their late
fees within the last two years with $29 being the most commonly
charged fee. Paying less than the minimum can also trigger fees.
If she's incurring a fee of $25 per month, it will take her
closer to 9 years to pay off the debt.
If they really can't raise money
or cut expenses, Lisa might want to consider contacting a
non-profit credit counseling agency. There are a number of good
ones available. It will be a black mark on their credit history.
But, it's better than falling even further behind and heading
towards bankruptcy.
Lisa is definitely in a bind.
Debt is a cruel master. Card issuers really don't care how hard
it is to make the payments. They live in a 'bottom line' world.
Either they collect the money owed or they have to write it off
as a loss. And no one likes losses.
Hopefully Lisa will be able to
find an extra $100 each month that can be applied to repayment.
That could be enough to begin to resolve this crisis and start
the recovery process.
Gary Foreman is a former
Certified Financial Planner who currently edits The Dollar
Stretcher web site www.stretcher.com/save.htm
and ezines. You'll find hundreds of free articles to help you
save time and money. Visit Today!
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