Help! My Creditors Are Coming!

Did you answer “yes” to Question 10 on the Debt Test? If so, you don’t need me to tell you that you have a problem. You already know. What you do need is immediate relief so you can stay out of trouble and get your financial house in order.
It may be difficult to believe right now, but all hope is not lost. Even if your creditors are banging on your door, you CAN work things out in your favor. Bankruptcy is not the only option:
It should be considered only as a very last resort and only if you have earnestly tried every other conceivable way to take care of your debt. So, what can you do if creditors and collection agencies are writing and calling, or if your credit rating is disintegrating before your eyes? These steps can give you some immediate relief while you work your way out of debt bondage:

Step One: Talk to Your Creditors
In many cases, you can negotiate with creditors for temporarily smaller monthly payments, no interest accrual for a specified time, or even a reprieve from all payments for a month or more while you get back on your financial feet. These are just stalling strategies, of course, because you still will have to pay up eventually. But if creditors are after your hide, these methods can get them to back off while you pay down your debt.
Another possibility is that a creditor –especially if it is a small or local company– will agree to cancel your debt for less than the total you owe. Just make sure this will not adversely affect your credit rating. A few creditors will be willing to do this if it prevents you from defaulting completely.
Don’t be afraid to call creditors. In most cases, they are more than willing to work with you. Their main goal is to get their money from you. That is easier and cheaper for them than repossession or taking you to court. Most companies have specific plans in place to help debtors pay off their debts. All you have to do is ask … and you might be pleasantly surprised at the
response.
The best time to talk to creditors is before they turn your account over to their collection department or a collection agency. Let them know you are having a hard time right now, and ask if they would be willing to work something out with you, temporarily, until you are in better financial shape.

Step Two: Don’t Be Intimidated
When a bill collector calls, be polite and calm even if the caller is not! Immediately ask for the bill collector’s name and company address. (The caller may be from a collection agency, the creditor’s in-house collections department, or some other firm.)

During the conversation, find out what you need to do to take care of the problem. You should try to work out some kind of a solution; usually that will mean either full payment by a specified deadline, or regular, timely payments until the debt is paid off. (If possible, pay the creditor directly –not the bill collector. Then if the bill collector contacts you again, state that you have already paid the creditor. If the creditor will not take your payment, then you should pay the bill collector. This often means your creditor has sold your bad debt to a collection company at a large discount.)
Keep written record of every conversation you have with a bill collector; note the date, the person’s name and the main points of the conversation. Also save all written correspondence you receive from a bill collector, collection agency or creditor.
What if you are doing the best you can to repay, but a bill collector continues to contact you? Write a letter requesting the bill collector to cease all further contact with you. Don’t vent your anger in the letter; just make your request. Send the letter by certified mail with Return Receipt Requested.
After you send this letter, you will probably receive a letter from the bill collector, stating the next action that will be taken. That should be the final word from the bill collector. If it isn’t, see Step Three.

Step Three: Know Your Rights
No matter how much money you owe, you have rights under the law. The Fair Debt Collection Act is your primary ally; it limits the methods collection agencies may use to get the money you owe. Basically, this law says a collection agency’s representative cannot call or visit you in your workplace, or call you at obviously inconvenient times such as late at night or early in the morning. It is also illegal for the agency to threaten, harass or annoy you.
If a collection agency uses any of these methods against you,if it continues to contact you after receiving your written request to stop, or if you have any other reason to believe you are being
treated unfairly by the agency, you should file a complaint with the Federal Trade Commission, your state’s attorney general, or both. Also, let the agency know you are familiar with the Fair Debt Collection Act, and that you will take action if the unfair tactics continue.
The law applies only to collection agencies. If you are being harassed by a creditor’s attorney or a creditor’s in-house collection department, talk with your attorney.

Step Four: Set Up A Budget For Your Finances
If you don’t already have a monthly budget plan, now is definitely the time to develop one. This kind of discipline will help you get out of debt sooner and may help to prevent further problems with unpaid debts. In your budget, list every expense and every debt payment. Don’t forget irregular expenses, such as quarterly insurance premiums. For each budget item, establish the minimum you will pay each month. If you have any money left over, put it toward paying down your debts. And make sure your budget is realistic. It won’t work if it’s unworkable!
By the way, a budget won’t do you much good unless everyone in your family follows it. Make sure your spouse knows as much about the budget as you do. Also make sure he or she understands why the budget is necessary, and the importance of the whole family sticking to those monthly numbers.

Step Five: Immediately Cut Expenses
When collection agencies are breathing down your neck, it’s not a good time to take an expensive Caribbean vacation. Instead, take a hard look at your spending habits. For two weeks, keep a list of every dime you spend. This sounds tedious, but it can be an illuminating experience. You’ll probably be quite surprised to see exactly where your money is going. Then you will be able to figure out where you can most easily and realistically cut expenses. For example, you can shave a few bucks off your grocery bill by clipping coupons … make long distance calls only during the cheapest calling periods… eat out less often … increase your insurance deductibles … wait for sales….
Remember, every little bit counts. Don’t sneer at saving two bucks in the grocery store. When you add a bunch of two bucks together, pretty soon you have a lot of money. Even millionaires know the value of saving a little here and a little there. The old saying is true: “A penny saved is a penny earned.” And the pennies you save can be used to pay down your debt, so you can get back on the path toward financial fitness and wealth.
Remember, in the final analysis, your net worth will be based on what you saved, not what you earned and spent. I admit that this was a hard lesson for me. If you want to get out of debt, start saving as much as you can as quickly as you can so you can apply it to debt reduction.
Keep your priorities in order. If only one creditor is giving you grief, that’s the one you should work on paying off first –but don’t let your other debt payments slide completely. For now, focus on putting as much money as possible toward the “squeaky wheel,” even if that means you can pay only the minimum due on your other debts for a while.
Even if you are not being bothered by creditors or their collection agencies, it’s essential that you know exactly where you stand at all times when it comes to debt. By now you have a good idea of how much debt is too much, the hazards of that debt and whether or not you are in the danger zone. Now it’s time to figure out exactly how to track your debts, so you’ll always know how much you owe and to whom. The next chapter will help you do just that.