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Dealing With Debt
Consumer debt is at an all-time high. What’s more, a record number of consumers – nearly 1.5 million in 2001 – is filing for bankruptcy. No matter what is the cause of your debt dilemma – illness, unemployment, emergency expenses or overspending – it can seem overwhelming. In your effort to get solvent, be on the alert for advertisements that offer seemingly quick fixes. While the advertisements promise debt relief, they rarely say relief may be spelled b-a-n-k-r-u-p-t-c-y. And although bankruptcy is one option to deal with financial problems, it’s generally considered the option of last resort.
Contacting your creditors
Contact your creditors immediately if you are having trouble making ends meet. Tell them why it’s difficult for you, and then try to work out a modified payment plan that reduces your payments to a more manageable level. Your creditors may be willing to accept reduced payments if you enter into a debt repayment plan with a reputable organization. In these plans, you deposit money each month with the credit counseling service. Your deposits are used to pay your creditors according to a payment schedule developed by the counselor. However, a debt repayment plan does not erase your negative credit history.
Bankruptcy
Personal bankruptcy is a legal procedure that offers a fresh start for people who can’t satisfy their debts. It is generally considered the debt management tool of last resort because the results are long lasting and far-reaching. A bankruptcy stays on your credit report for ten years, making it difficult to acquire credit, buy a home, get life insurance, or sometimes get a job.
Advance-fee loan scams
Every day, companies nationwide appeal to consumers with poor credit histories. These scams often target consumers with credit problems or consumers who have difficulty getting credit. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance or even a job. They claim to guarantee that they can get a loan or other type of credit for you but you must pay a fee before you apply.
The up-front fee may range from $100 to several hundred dollars. Resist temptation to follow up on advance-fee loan guarantees. They may be illegal.
Ads for advance-fee loans often appear in the classified ad section of local and national newspapers and magazines. They also may appear in mailings, radio sports, and on local cable stations. Often, these ads feature “900” telephone numbers, which result in charges on your phone bill. In addition, these companies often use delivery systems other than the U.S. Postal Service, such as overnight or courier services, to avoid detection and prosecution by postal authorities.
These companies give you warning signs that should prevent you from doing business with them:
- Want you to pay for credit repair services before any services are provided;
- Do not tell you your legal rights and what you can do free by yourself;
- Recommend that you not contact a credit bureau directly;
- Suggest that you try to invent a “new” credit report by applying for an Employer Identification Number to use instead of your Social Security number; or
- Advise you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.
Many legitimate creditors offer extensions of credit, such as credit cards, loans, and mortgages, through telemarketing, and require an application fee or appraisal fee in advance. An offer for credit from a bank, savings and loan, or mortgage broker generally requires your verbal or written acceptance of the loan or credit offer. The offer usually is subject to a check of your credit report after you apply to make sure you meet their credit standards. You are usually not required to pay a fee in order to get the credit.
Consumer Support Legislation
- The Equal Credit Opportunity Act prohibits the denial of credit because of your sex, race, marital status, religion, national origin, age, or because you receive public assistance.
- The Fair Credit Reporting Act gives you the right to learn what information is being distributed about you by credit reporting agencies.
- The Truth in Lending Act requires lenders to give you written disclosures of the cost of credit and terms of repayment before you enter into a credit transaction.
- The Fair Credit Billing Act establishes procedures for resolving billing errors on your credit card accounts.
- The Fair Debt Collection Practices Act prohibits debt collectors from using unfair or deceptive practices to collect overdue bills that your creditor has forwarded for collection.
What to Look For When You Need Debt Relief
Consumers should closely examine any promotion promising to eliminate calls from debt collectors, lower interest rates or reduce debts.
- Make sure the company has a good track record. Talk with other customers, get genuine references, and check with the Better Business Bureau.
- Have the company send you written materials covering its business history and services, before making any payments or signing any contract.
- Look for a program that provides true budget counseling and courses on how to budget, save and invest your money. Make sure the counseling includes an action plan for paying your debts.
- Ask if the program's employees are bonded, so the money you pay for your creditors won't be lost.
- Insist on proof of payment. The company should provide monthly statements showing when and how much it paid each creditor.
- Be wary of Web site promotions with no presence in your community and little or no educational content.
- Make sure there is a trust account. Reputable companies put your money in a trust account, separate from operating income, so it actually goes to your creditors.
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