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Drowning in Debt:
Behind in Credit Card Bills
by Gary Foreman
 Q: My husband and I have one
credit card debt to the tune of about $3500. I cancelled the account so we
can't charge any more. We have been making payments of $100 every month which
is well below the minimum that the credit card company requests. They call
nearly every day hounding us for the rest of our minimum payment which has
reached in the neighborhood of $800 a month. Although we are not paying what
they request every month, we ARE making a payment. Is there any way we can
stop the phone calls? Are we breaking the law by not paying the entire minimum
payment? We do plan on making a large payment when we can, but with three
kids and one income, $800 is hard to come by.
-- Lisa B.
A: Sounds like Lisa is in a tough place. She's really asked three
separate questions. What can she do to stop the collection calls? Is falling
behind illegal? And what's the best way to get out of this situation?
According to the American Bankers Association there's over $600 billion in
bank card and revolving credit outstanding. And a little more than 3% of
the bank card accounts are delinquent. That's about $18 billion owed on past
due accounts. So Lisa's got a lot of company.
Harassing Phone Calls
Let's begin with the harassing phone calls. The Fair Debt Collection Practices
Act (FDCPA) is designed to protect consumers from abusive, deceptive and
unfair treatment by debt collectors.
The law gives debtors certain rights. For instance, if you don't think that
you owe the money, you have the right to dispute the debt. You must respond
in writing and do it within 30 days of receiving the letter from the debt
collector.
The phone calls can be stopped. Just send a letter to the collection agency
telling them to stop contacting you. Once notified the collector can then
only call or write to inform you of action that they intend to take (i.e.
legal suit) or tell you that they intend to stop trying to collect the
debt.
She is allowed to hang up on a debt collector. No law says that you have
to speak with them. Nor do you have to give them your phone number if they
ask.
Debt collectors are not allowed to call you at work. They're limited to calling
between 8am and 9pm. They can't make threats or tell others about your
situation.
Complaints
Any complaints about collection practices should be directed to your state
attorney general or local consumer protection agency. You may also choose
to send a copy of your complaint to the FTC at: The Federal Trade Commission,
Washington, DC 20580
Lisa should not negotiate with debt collectors by phone or in person. All
communication should be written. Respond to all of their requests by mail.
Use registered mail so you have proof that it was received. By keeping copies
of all correspondence she'll have a precise record of what has happened.
Before You Fall Behind
It appears that Lisa missed a very important step. When you're about to fall
behind you need to contact creditors immediately. Explain the situation and
your willingness to repay debts. They're more willing to listen if you call
before the bills become past due. They may customize a repayment plan that
you can afford. Remember, their goal is to collect the money borrowed plus
interest. If you propose a plan that will get them paid
back you've helped them achieve that goal.
Breaking The Law?
Now for the second question. Yes, Lisa is breaking the law. She won't be
taken away in handcuffs. But she has made a contract with her credit card
company. Now she's not living up to that contract. Those charge slips commit
us to the payment plan of the card company. If the situation goes on long
enough, the creditor could force Lisa into bankruptcy.
Already, the delinquency is reflected in Lisa's credit history. That will
make it more expensive for them to borrow money in the future.
Getting Out of Debt
Finally, what can Lisa do to get out of debt? First, she needs to use a budget.
Then she needs to raise extra money and be prepared to cut all unnecessary
expenses.
This is a good time to consider any way that Lisa might have to raise funds.
Consider a part-time job. If they own their residence, a home equity loan
might be a way to make the debt more manageable.
Unnecessary expenses need to be slashed. And 'unnecessary' should be defined
as anything that's not absolutely essential to surviving until the crisis
is passed. For, indeed, this is a financial crisis.
Lisa's $100 per month isn't enough to get the debt paid off. At 22% annual
interest (and it could well be higher) it would take her 6 years to pay off
the debt.
But it might take longer. According to Bankrate.com all of the ten largest
card issuers have increased their late fees within the last two years with
$29 being the most commonly charged fee. Paying less than the minimum can
also trigger fees. If she's incurring a fee of $25 per month, it will take
her closer to 9 years to pay off the debt.
If they really can't raise money or cut expenses, Lisa might want to consider
contacting a non-profit credit counseling agency. There are a number of good
ones available. It will be a black mark on their credit history. But, it's
better than falling even further behind and heading towards bankruptcy.
Lisa is definitely in a bind. Debt is a cruel master. Card issuers really
don't care how hard it is to make the payments. They live in a 'bottom line'
world. Either they collect the money owed or they have to write it off as
a loss. And no one likes losses.
Hopefully Lisa will be able to find an extra $100 each month that can be
applied to repayment. That could be enough to begin to resolve this crisis
and start the recovery process.
See more of Gary Foreman's finance articles on FamilyCorner.com
What's Related
Canceling a Credit Card
10 Steps to Improve Your Financial Situation
After Bankruptcy Blues
Keeping Credit Card Fraud At Bay
About the Author:
Gary Foreman is a former Certified
Financial Planner who currently edits
The Dollar Stretcher
website and ezines. You'll find hundreds of free articles to help you
save time and money. Visit Today!
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