Managing between Jobs: Talking with Creditors
Managing between Jobs
Adapted from a University of Wisconsin-Extension publication. (Oregon State University EC 1394). "
OSU. Reprinted with permission.
When your income drops and you realize you can’t pay all your bills, it’s
important to face your debts and know how to talk to your creditors. Your past experiences with creditors are important. If you have consistently
paid bills when due, your creditors will be more cooperative than if you were late or didn’t make regular payments. Creditors are in the business
of lending money and/or providing services. They want to get paid.
Contact your creditors; don’t wait for them to contact you. Explain your
current situation. Tell them unemployment has reduced your income and
you are not able to keep up with your complete payment. Frankly discuss
your future income prospects so you and your creditors can figure out
solutions to the problem. Most creditors would prefer to receive smaller
payments on a regular basis than to begin expensive collection procedures.
Where To Begin -
- First, determine how much money you have to pay off your debts.
- Figure out how much
income you can count on each month and how much you need to pay for
your essential monthly living expenses. You’ll need to know who
and how much you owe, as well as how you plan to pay them.
- Review your situation
and figure out a plan to divide your income to pay your monthly living
expenses and set priorities for paying bills. If there is a consumer
credit counseling service in your area, call or visit them. They provide
counseling to families on debt problems.
Contacting Your Creditors -
If there is no consumer credit counseling service, contact each creditor, explain your situation and work out a solution. Be prepared to explain
the following:
- The reason you fell
behind in your payments
- Your current income
and prospects for future income
- Other obligations
- Your plans to bring
this debt up to date and keep it current, including the amount you will
be able to pay each month
Visit
local creditors in person. Visit the loan officer at your bank or credit
union, the credit manager of local stores, the budget counselor at the
utility company. Don’t forget creditors like your dentist, physician,
clinic, and hospital.
Contact
out-of-town creditors by phone or letter. If you phone, write down the
name and title of the person to whom you talked. Follow up the conversation
with a letter summarizing what you and the creditor agreed. Keep copies
of your correspondence as well as any reply.
Sample Letter To
Creditors -
Use the example below as a guide when
writing or talking to creditors. Fill in the specifics of your situation
in place of the information in parentheses.
As
you negotiate with each of your creditors, don’t agree to any plan
simply to get off the hook. Be sure you will be able to follow through
on the agreement. Establish a payment rate that is acceptable to both
you and the creditor.
Here
is a list of some alternatives to consider when negotiating with your
creditors:
- Reducing the monthly
payment
- Refinancing the
loan
- Deferring a payment
for a short time if you expect to get called back to work soon
- Reducing or dropping
late charges
- Paying interest
only on the loan until you can resume making monthly payments
- Voluntarily surrendering
or giving back an item purchased on credit
- Selling the item
and using the cash to satisfy, or partially satisfy, the debt
Not
all creditors will be willing to accept alternatives. However, they’ll
be more likely to work with you if you contact them before they contact
you. They all want their money and would rather get some money on a regular
basis than have to begin collection procedures.
If
you fail to follow the plan that you and your creditor agreed upon, you
will hurt your chances of getting future credit. Tell your creditors about
any changes that may affect your payment agreement.
If
you owe a large amount of money, and if your creditors won’t accept
reduced payments, you may have to consider more extreme alternatives such
as bankruptcy.
If
You Don’t Pay Your Bills -
If you miss a payment, you will be faced with increasing pressure
to pay. First you will receive a letter reminding you that you missed
a payment and asking you to pay promptly. After that, you may receive
a more direct letter demanding payment, or you may get a phone call.
If
the bills are still not paid, they will probably be turned over to an
independent collection agency. While the agency will try to get you to
pay, the law protects you from certain actions. They can’t use abusive
language or threaten you with violence. They can’t call you at unusual
hours or threaten criminal prosecution. And they can’t discuss your
financial situation with others.
Here’s
what to do if you receive a call from a creditor or a collection agency.
- Identify the caller.
Ask the name of the caller. Get the name of the creditor and the name,
address, and telephone number of the collection agency. Get the exact
amount of the account that is claimed to be due. Write down the date
and time of each call.
- Don’t get angry.
Remain calm. Arguments don’t settle anything. When you become angry,
you may forget to obtain important information. Remember, creditors
accused of being angry or abusive may say it was the customer who was
angry and abusive.
- Dispute debts in
writing. If you believe you do not owe the amount claimed or disagree
in other ways, make your reasons known promptly in writing to both the
creditor and the collection agency. Request a written statement of your
account. Always keep copies of your correspondence for future reference.
- Ask in writing that
creditors write rather than phone you.
Creditor’s
Options -
Creditors can take several kinds of legal action against you. These
actions are often written into the sales contract you signed. If you fail
to make payments, you will receive letters from a creditor’s attorney
or a collection company warning you of the intended action. Here’s
a list of possible actions a creditor might take.
- Acceleration
- the entire debt is payable at once if you miss a payment. The
courts can force you to pay by seizing your property and selling it.
- Repossession
- the creditor can seize the item you bought or the property you
used as collateral. If the sale of the property brings less than the
amount you owe, usually you still must pay the difference.
- Wage garnishment
- a court order that requires your employer to withhold part of
your wages and pay your creditor.
- Foreclosure -
if you do not make your mortgage payments for at least three months,
your lender takes possession of your home and sells it to pay off the
loan. You are responsible for the legal fees and difference between
the selling price and the amount owed.
All
of these actions are very serious and could jeopardize your ability to
get credit in the future. You can reduce your chances of being harassed
by creditors or collection agencies by working out solutions early.
SAMPLE LETTER TO CREDITORS
Date
Your Address
Your City, State, Zip
Company Name
Street Address
City, State, Zip
Attention: Delinquent
Account Representative
Subject: Your Name/Your Account Number
The purpose of this letter is to inform you that I am having trouble making
my minimum monthly payment as a result of (a recent job loss or seasonal unemployment, etc.). I hope we will be able to agree upon an acceptable
debt repayment plan.
I have taken a careful look at my financial situation. I have set up a realistic
minimum budget for my living expenses and have developed a debt repayment
program. I am hoping that you will accept a reduced payment. Amounts will
be increased as soon as possible until the debt is totally repaid.
I owe
(12 creditors over $9,500). My monthly take-home pay is ($1,000). I have
($242) left over after basic living expenses for debt repayment. I would
like you to accept a partial payment of ($50) per month to repay my obligation.
You may expect the first payment on (July 1, 1992). I hope to be able
to return to my original payment schedule on (date).
I hope you find this plan acceptable. I look forward to your letter of acknowledgment.
Thank you.
Sincerely,
Your
Name
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