You’re far from alone if you have trouble with debt. And there are plenty of people out there who say they’re willing to help you—with credit counseling, debt consolidation and other fixes. But what if you want to stay in control of your finances and your credit as much as possible, and try to solve your problems on your own by dealing with your creditors directly?
Experts say debtors have a good chance of working out mutually agreeable payment plans with creditors—but only by acting early. Timing is critical. You should contact creditors immediately if you find you’re having trouble paying bills. The longer you wait, the worse the problem will become and the shorter the time for dealing with it. Once your accounts have been turned over to a collection agency, it’s too late. At that point, as the Federal Trade Commission notes, “your creditors have given up on you.”
The other factor in the problem-solving equation is communication. It’s better to let creditors know up front about your problem before it becomes obvious to them through your failure to pay. Jamshed B. Gandi, a certified public accountant (CPA) in San Francisco, Calif., says, “The creditor has to understand the debtor’s situation, and that comes from communication.” Gandi, who has worked with both creditors and borrowers, says creditors in particular want to know if the debtor’s problem is temporary, like a break in business revenue or personal income likely to last 3 to 6 months.
Gandi says creditors are inclined to give such debtors a chance. If the debtor works out a deal and still slips up on payments, the problem is clearly no longer “temporary.” So it’s up to the debtor to follow through, because second chances may not be so easy to come by.
Where do you start?
Faced with a break in income, such as a job loss, that is likely to cause trouble with debt payments across the board, a debtor may suddenly face a frightening array of loans to deal with, from home and auto loans to credit card and store accounts. Where do you start?
Neil Debagian, a CPA in Plymouth Meeting, Pa., points out that you need to find out who your creditors are before you can contact them. And in doing that, he says, you may learn you have fewer creditors than you thought. You might have several credit cards with the same lender.
You may also have some accounts with small balances—like $100 or less—that creditors might be willing to close out for some fraction of the balance rather than going through the time and effort of collecting. “You don’t want to lose sight of the fact that if there are de minimus accounts outstanding, [the creditors] just want to hear from you and to hear you can’t pay it,” says Debagian. “It’s in their interest to settle at cents on the dollar.” But he warns against repeat performances. “You don’t want to have that conversation more than 2 or 3 times,” he says.
Tips for talking with collection departments
Debagian has other tips for talking with your creditors’ collection department. When you call, he says, tell them you want them to understand your situation—and stay calm. “It’s never appropriate to deal emotionally with any of this stuff.” If the first person you talk to balks at negotiating, move up the line to a supervisor and explain, politely, that you’re serious about working out a solution. And whatever you offer, be sure you’re able to follow through. “Under-promising and over-delivering is better than over-promising and under-delivering,” Dabagian says.
The point to remember is that creditors and debtors both want the same thing: For as much of the debt to be repaid as possible. The alternatives, from repossession to bankruptcy to the cutting of services like water and power, are all worse from the creditors’ point of view. “They certainly don’t want your house and they don’t want you not using their utilities,” says Dabagian. But they also can’t wait for their money indefinitely. Problems can be worked out, but not if debtors wait for the problems to solve themselves.
The FTC’s Web site (www.ftc.gov) has numerous articles covering all aspects of consumer credit, including information on dealing with creditors and learning one’s rights in the collection process. The menu of consumer credit articles is at www.ftc.gov/bcp/menus/consumer/credit.shtm.