Strategies Before Creditors and Collectors Call

Excerpted from Credit Repair Answer Book by Gudrun Maria Nickel ©2007

As soon as you realize that you may have difficulties in making your payments, you should contact your creditors. Do not try to hide your financial condition. Let them know what has happened—job layoff, divorce, illness, etc.—and that you will make every effort to meet your financial obligations. Offer to make minimal payments for a period of time, or perhaps suspend your payments (not make any) for a month or more.

Prepare Yourself and Your Creditors
Generally, your creditors will be much more receptive to your suggestions for reduced or suspended payments if you notify them before they find it necessary to contact you. (Many will accept token payments instead of pursuing collection, as long as you explain the reasons for your inability to pay, and that you will make up the difference as soon as you are able.)

Prioritize
You should also take stock of your current financial situation and place your debts and assets in order of priority. Your most important obligations may be your mortgage or rent, utilities, and car payment. Consider what you can sell in order to pay off some of your debt. Practical strategies, although perhaps a bit difficult to accept at first, will help see you through the tough times.

Perhaps you should sell your car, pay off the loan, and buy an older, used car, which would also lower your insurance premium. However, before selling any property to pay your debt, be sure you understand what will be exempt from judgment creditors and bankruptcy in your state.

The “Minimum One Dollar Payment” Myth
Some people have the mistaken notion that a payment of one dollar per month is sufficient—particularly when it comes to hospital and doctor bills—and that no action can be taken by the creditor if that one dollar payment is made regularly. This is an incorrect assumption. Those creditors have the right to receive payment from you in the manner you agreed to pay them, or in a timely manner.

If you cannot reach an agreement with your creditor as to how a past due account can be paid, or if you reach an agreement and then do not pay, the creditor can send the past-due account to a collection agency, and ultimately (or in some cases directly) to the credit bureau. The creditor may also choose to pursue a judgment against you, often in a small claims court where cases can be handled without a lawyer. However, if your creditor refuses to work with you during your period of financial difficulties, then you may have a more sympathetic judge when you appear in court.

Wage Assignments
Be wary if a creditor asks you to assign some of your wages to make the payments on the loan. This may be illegal in certain cases under federal law, and it effectively reduces your control over your income. Wage assignments in non–real estate transactions are allowed only if you are also given the power to revoke the assignment. (Code of Federal Regulations (C.F.R.), Title 16, Section (Sec.) 444.2.)

Credit Counseling
If you find yourself in credit trouble, credit counseling can often be helpful. Consumer credit counseling is available through local offices affiliated with the National Foundation for Consumer Credit. This is a national network of over 1,450 Neighborhood Financial Care Centers. It is a nonprofit organization, supported by contributions from banks, consumer finance companies, merchants, credit unions, etc. A consumer credit counseling service can work with your creditors to establish a realistic payment program. You may find information about the services or locate your nearest center on the Internet at www.nfcc.org.

HUD Counseling
There are approximately 750 HUD (Housing and Urban Development) approved counseling agencies all over the country. If you are unable to make payments under a Federal Housing Administration (FHA) mortgage, you will be referred to such an agency. However, counseling assistance is available to anyone, usually at no charge. The counselors can help you get employment, budget your income, and work out your credit difficulties. You may call 800-569-4287 for a referral to your local HUD approved counseling agency or call 800-767-7468 for additional information. You can also find information at www.hudhcc.org.