If you are experiencing the stress that comes from having too much debt, take heart! You have several options:
There are basically two types of debt:
Secured debt (home mortgage, equity line of credit, automobile, etc.), anything that represents collateral to the lender in the event you default on your loan.
Unsecured debt, such as:
- Credit Cards (Visa, Master Charge, etc.)
- Store Credit Cards (Home Depot, Kohl's, etc.)
- Medical bills (not covered by insurance)
- Private loans (bank, payday, personal)
- Private Student Loans not back by the Federal Government
- Old Apartment/Rental debt
- Deficiency balance still due after a repossession
- And, of course, there are many others
In this article, I'm basically addressing UNSECURED DEBT, although, is certain circumstances, some of the options can apply to Secured Debt as well.
If you are experiencing a severe financial situation, most likely it was caused by something beyond your control, such as:
- Loss of employment
- Death of spouse, family member, or partner
- Illness or disability
- Insufficient income after retirement!
See if this sounds familiar...
The company you have worked for decides (or has no choice) but to downsize and layoff (I guess this is a "politically correct" word for GETTING FIRED).
You are one of the unlucky ones and find yourself (for the first time in years), facing the prospect of looking for a new job.
Sure, you will receive UNEMPLOYMENT BENEFITS for a time, but at some point, they will stop.
You had used some credit cards in the past, but the balances were relatively low and you were not only making the minimum payments, but also paying a little more to pay them off sooner than later.
As the job search continues, your unemployment benefits stop and you start dipping into whatever small savings you had. But soon, your starting to understand that you are in trouble!
You have a couple of job offers, but they are not going to pay you as much as you were getting before.
So, you really have no choice and decide to accept a lower paying job just to have some kind of income! All the while, you are going to keep looking for a better paying job.
But, not only do you not find a better paying job, you have to start using some other credit cards to make up the difference just to get by!
Soon, your credit cards are starting to get "MAXED OUT", and you find yourself unable to keep up with the MINIMUM REQUIRED PAYMENTS!
When you start missing payments, the creditors will most likely send you a letter or perhaps call to see what is going on.
Sometimes they seem almost understanding and willing to work with you, but often, they are very mean and demeaning to you!
After a couple of months of missing your minimum payments, you will start getting calls....LOTS OF CALLS, from your creditor.
Unfortunately, as long as the account is with the original creditor, you cannot do anything about the calls.
My advice is to answer once and try to explain that you are going through a rough time and fully intend to repay this debt. After that, I would just ignore the calls as most of the agents calling are not going to be sympathetic to you anyway.
After 3-4 months of non-payment on your account, most likely the creditor will assign or sell your account to a DEBT COLLECTOR.
At this point, here are you basic options:
At first, the debt collector may not offer anything else but FULL REPAYMENT (plus all the interest and fees added) on your account.
Of course, you can't do that (if you could have, you wouldn't have been in this situation)!!!!
The Debt Collector may start calling daily and even several times a day, but know you can put a stop to the calls!
The Fair Debt Collection Practices Act allows a consumer to put a stop to these annoying calls by simply writing a letter telling them to "cease and desist".
Just click on the button below for a free, sample letter you can use:
But, just because the calls have stopped doesn't mean the debt is going to "go away"!
At some point, you may get letter offering a SETTLEMENT of your account for less than the balance.
Most of the time, these letters offer a savings of 25% -35% off the balance if you can pay that amount in a LUMP SUM within a short period of time!
If you can't take advantage of the "offer", then you may get a letter stating that your account is set to be turned over to their "LEGAL DEPARTMENT". That sounds scary!
The last thing a Debt Collector wants to do is to have to resort to LEGAL OPTIONS in order to get you to pay on this debt.
Although the letter stated that they could only offer a moderate reduction if you could make a lump sum payment, in fact, they most likely will be willing to accept a better reduction and even let you pay it out over several months! Here are a few examples:
If the debt collector is unwilling to budge and/or accept a reasonable settlement with terms you can afford, then they may decide to go ahead and file a claim in order to get a judgment.
With a judgment, then they can apply for a WRIT OF GARNISHMENT, which would be sent to your employer. Your employer would have no choice (although there are exceptions), but to obey the writ of garnishment and send them 25% of your net, take-home income!
Since that would be financially devastating, and you may would not be able to pay the mortgage or rent, utilities, buy groceries, etc., you may be forced to seek BANKRUPTCY PROTECTION!
In my opinion, bankruptcy should be your very last...there's nothing else you can do...option.
However, bankruptcy is not as bad or harmful as you may think!
Although your options of dealing with too much debt are limited, you owe it to yourself to get some advice and see what you can or cannot do, given your circumstances.