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Handling Debt And Credit Problems The Smart Way


April 2009

The news headlines have been telling the bad news for months: financial crisis, job losses, recession, record foreclosures. Millions of people have been affected financially by the current economic conditions. If you are facing debt or credit difficulties, how you handle matters to resolve the issues can make a big difference. This month's report provides some tips to help.

If you are facing difficulties, take prompt action.

At the first sign of financial difficulties, you should take immediate steps to get on the path to financial recovery. The earlier you start, the more options you have.

First of all, you need to determine where your money is going. So start a spreadsheet on your computer or grab a pencil and paper (this GetReal worksheet may help). Start by listing your income from all sources. Then list all of your monthly expenses no matter how small. Typical expenses include mortgage or rent, car payment, health insurance, utilities (water/sewer, electricity, gas, telephone, etc.), groceries, gasoline, credit card payments, and child care. How much do you spend on clothing, meals out, entertainment? Record your expenses for at least the past or present month; two or three most recent months’ expenditures will give you an even better picture. This record helps you to track your spending patterns. It also helps you detail necessary and discretionary (optional) expenditures.

Next, make a budget for necessary expenses. You want to make sure that you can provide the basics – housing, food, health care, insurance, education – within your income. Include other necessary expenditures such as payments for car loans, credit card payments and other credit accounts or loans. How does this budget match up with your current monthly expenditures? Can you comfortably cut expenses down to this budget or do you need to make some allowance for other expenses?

Now, compare your monthly income with your new budget for total expenses. Do ends meet? If so, great. You may wish to give your new budget a try. If you can't make ends meet, even with the new streamlined budget, then it may be time to seek appropriate help. Is taking a second job a realistic option? In many areas and for many people, this may not be possible. At this point, you may benefit from consulting professional help.

We recommend first checking out the Financial Counseling Services offered by BayPort. The program offers many resources such as money management counseling, debt management, housing counseling and more. We recommend that you start with BayPort because they can provide or refer you to reputable and reliable services. This last is important because the “debt relief” field also attracts fraudulent businesses who target vulnerable consumers; more about this in a moment.

If debt collectors are already calling, know your rights.

If you have already fallen behind in one or more accounts, the businesses to which you owe money have probably begun to contact you by phone or mail. When pressed by money worries, it’s tempting to ignore the letter or put the caller off. Not a good idea, experts say. At this point you may be able to work directly with the creditor to create a payment plan that reduces your payments to a more manageable level. That’s also the time to seek help from reputable experts; as noted above, the Balance Financial Fitness program may be able to help.

Tips for handling debt and credit problems

  • Check out the Financial Counseling Services offered by BayPort.
  • If you are facing difficulties, take prompt action.
  • If debt collectors are calling, know your rights.
  • Avoid misleading or fraudulent debt repair "services."

If an account is more than 90 days past due, a creditor may use a third-party collection agency to seek to collect the money owed. Because debt collection is a field where abuses can happen, it is important to understand that you as a debtor have the legal right to be treated fairly and without pressure or harassment. The Fair Debt Collection Practices Act (FDCPA) provides protections to consumers who are dealing with third-party debt collectors.

The FDCPA applies to personal, family, and household debts. These debts include money owed for a car purchase, medical care, or charge accounts. The FDCPA requires that debt collectors treat you fairly and prohibits them from engaging in unfair, deceptive, or abusive practices to collect these debts. The following is a summary of what debt collectors may and may not do.

  • Debt collectors may contact you in person, by mail, telephone, telegram, or fax. They can only contact you between 8 a.m. and 9 p.m., unless you give them permission to contact you at other times.
  • Debt collectors must send you, within five days after you are first contacted, a written notice that indicates the amount of money that you owe, the name of the creditor that you owe the money to, and what you should do if you believe that you don't owe the money.
  • Debt collectors may not

    • contact you at work if they know your employer disapproves of such contact.
    • contact you after you write a letter telling them to stop, except to notify you that the debt collector or creditor plans to take a specific action.
    • contact friends, relatives, employer, or other persons except to find out where you live. what your phone number is and where you work.
    • tell anyone that you owe money except you and your attorney.
    • harass, oppress, or abuse you.
    • threaten violence or harm.
    • use obscene or profane language.
    • make false or misleading statements.
    • claim that you'll be arrested if you don't pay the debt.

If you have any problems with a debt collector, report them to your state Attorney General's office (find it at State and Local Government on the Net) and the Federal Trade Commission (FTC).

Avoid misleading or fraudulent debt repair “services”


Increasing financial problems have caused many more Americans to seek help for credit counseling and debt management. As noted earlier, working with a reputable credit counseling agency may be helpful. And your credit union or other financial institution may recommend reputable services in your region.

However, like any vulnerability, increased debt problems have led to a surge in fraudulent debt repair businesses. Advertisements arrive via radio, TV, email and snail mail. Many entice potential victims with promises to “get rid of debt without cost to you” or “consolidate all your debts into one monthly payment without borrowing” and the like. At best such statements misrepresent what a company can do for you. At worst, the ads are just a come-on to get you to pay the companies up-front money (often big amounts) for “services” they never intend to do; their goal is to steal your money. Consumer complaints to government agencies about such fraudulent debt repair schemes has soared in the past year. You can protect yourself in several ways:

  • Ignore all unsolicited emails, phone calls, or regular mail offers for debt repair. Reputable nonprofit credit counseling services do not solicit business in this manner.
  • Evaluate advertising claims carefully. Check out the company with your state’s consumer protection office and with the Better Business Bureau. Ask your financial institution about them.
  • Don’t talk further with any company that requests account numbers and financial information before they will discuss services or fees. Don’t do business with any company that wants large upfront fees.
  • Read all contracts very carefully and if you don’t understand them, don’t sign them.

Remember, taking charge of debt before it takes charge of you can help you get successfully on the road to financial recovery.

For more information

BayPort's Financial Counseling Services

Your Equal Credit Opportunity Rights from the FTC

Debt Collection from the FTC

Coping with Debt from the FTC

Reviewed and updated August 2014.

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