Take Charge in Changing Times Dealing with Creditors For a host of reasons-sickness, unemployment, personal problems-many people experience debt problems. When the economy takes a downturn, an even larger number of people encounter hard times. Dealing with financial trouble can cause less distress if you know your options, Reduce your anxiety by taking charge now. Here are some practical, step-by-step strategies to use when bills cannot be paid. What to Do First Some tough decisions will be necessary. Talk with your family about these decisions. Cooperation of all family members is essential to carry out a plan of action. Follow these steps: Step 1: List family income. What is your current income? Do you expect it to change? Step 2: List assets-all that you own. It may be possible to sell some assets in order to pay bills. Do you own recreation equipment that is rarely used? Could you get along without a second car? Step 3: List debts. Record the creditor's name, total balance due, interest rate, and payment schedule. Are you behind in payments? How much? Step 4: Make a spending plan. See where your money goes. Put credit cards in a safe place and avoid using them for awhile. Cut out frills-, postpone some spending. take advantage of community services. Dust off your do-it yourself skills. For help in setting up a spending plan, refer to Money Mechanics: Spending Plans, Pm--934c available at your county extension office. Realistic estimates of basic living expenses and the amount available to pay debts are essential. Approaching Creditors Contact all creditors, including professionals such as a dentist or physician. Explain the exact facts-that a reduction in family income due to unemployment or divorce, for example, makes it impossible to keep up your complete payment. Be frank about future income prospects. You and your creditor can work together to figure out an acceptable plan. Put it in writing. Do not make promises you cannot keep. Remember, if reduced income continues for longer than you anticipated, renegotiation of payments will be necessary. It you contact creditors by telephone, record the name and title of the person with whom you talk. This information may be helpful at a later time. If creditors are contacted in writing, keep copies of all correspondence, including the reply. Deciding Which Debts to Pay You are obligated to pay all creditors. Not paying debts will affect your credit record and may involve court action, Probably the fairest approach would be to prorate your available money to all creditors. In doing this, each creditor would be paid a fair share. This method does not always work, since it requires the cooperation of all creditors. Procedures for dealing with debtors who cannot meet payments vary among creditors. Establishing priorities is another way determine which creditor should be paid first. Ask yourself these questions. - - What will affect my family's health and security the most? Usually the house,. utilities, food, transportation, and insurance coverage take preference, Pay these creditors first or contact them immediately to make provisions for smaller monthly payments. (Note: Iowar. law prohibits wintertime (November I-. April 1) utility disconnections of a resident who is eligible for either- low income home energy assistance or weatherization assistance, To avoid disconnection of electric or natural gas service under the wintertime moratorium, customers must (1) apply to their local Community Action Program (CAP) agency prior to a scheduled disconnection; (2) show the assistance application form to the utility; and (3) show the assistance approval form to the utility company. - Is your debt due to secured or unsecured credit? Secured credit is backed by collateral, usually a title to property. In the event of failure to pay, the lender can take possession of property. Home mortgages, car loans. and sometimes furniture and large appliance loans are secured. Unsecured debts, backed only by the borrower's signed guarantee to pay, may have to take a lower priority for payment. - How much equity do you have in the loan? Equity is the amount of principal paid on the debt. You may have loans on a television and a refrigerator. The refrigerator is essential, but if only two payments are left to buy the television, you may want to make those first. Consider selling or returning items purchased just before your income dropped. In the case of voluntary repossession, you must pay the difference between the market value of the merchandise and the loan balance. Such action may be reported in your credit record, but has a more positive status than repossession. - What is the interest rate you are paying? Compare the interest rates charged on your debts. Pay off the outstanding balance of loans with higher rates first. This allows you to reduce the amount of interest paid. - Is a consolidation loan a good idea? Personal finance companies want you to think so, but generally a consolidation loan charges high rates of interest, often 25 percent or more. A new loan also adds new credit costs. A single loan does make payment easier, but this is a small benefit for the additional costs involved. - What about your credit record? Nonpayment of bills is recorded on your credit record; late or partial payments may not be. That is why it is important to contact all of your creditors immediately if you cannot pay bills. Collection Practices If you do not contact creditors and make no payments, creditors may hire a collection agency. Federal regulations limit the practices of these agencies when collecting a bill. Collection agencies may only contact you between 8 a.m. and 9 p.m. They cannot discuss your financial situation with others (neighbors, employers), but they can contact others in order to locate you. You have the right to tell the collector in writing not to contact you and the collector must honor your written request. Alternatives If, after talking with your creditors, you feel you can no longer handle your financial situation, seek credit advice. Your county extension office can refer you to financial counselors. As a last resort in severe financial situations, you may want to consider filing bankruptcy. Seek legal counsel before taking this step. Adapted by Cynthia Needles Fletcher, extension specialist, family environment (consumer & management), from Credit Counselinq Centers, Inc. Education Advisory Committee, I)ealing With Creditors During Times of Financial Emergency, 1981. Cooperative Extension Service, Iowa State University of Science and Technology and the United States Department of Agriculture cooperating. Robert M. Anderson, Ji., director, Ames, Iowa. Distributed in furtherance of the Acts of Congress of May 8 and June 30, 1914.
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