Dollars & Sense

Dealing with Debt

Are you are facing financial difficulties and find yourself in a bind? Is it difficult to make your monthly payments?

First of all you must face the problem head on. Start by contacting your creditors to see if they are willing to work with you. Explain that you're having financial difficulties.

They may be able to adjust your payment schedule, possibly allowing you to pay lower monthly payments. You may be able to skip a payment all together, adding it to the end of a loan.

Most creditors will work with you to a certain degree, lowing monthly payments, reducing or eliminating interest rates, waiving late fees.

Review All Your Financial Options

1. Transfer balances from high interest rate credit cards to ones with lower rates.

2.  Review all loans for possible refinance at better rates and terms especially equipment, auto and mortgage loans.

3. You may qualify for a Debt Consolidation Loan with the bank to pay off credit cards.

4. Borrowing from family or friends.

5. Get help managing your debt from legitimate organizations. Consumer Credit Counseling Service, a nonprofit organization, provides low or no cost services to consumers who need a plan to repay debts and improve their credit.

To find the nearest CCCS office, call toll-free 1-800-388-2227.  This number was obtained on the Federal Trade Commission web site and does not constitute an endorsement.  

Prioritizing Your Debts

If you've gone from "where to cut back" to "what gets paid and what doesn't" it's time to prioritize your debts. There are two types of debt: essential and nonessential debts.

An essential debt is one that if not paid could result in serious consequences; nonessential debt is one with no immediate or devastating effects if you fail to pay. Make a list of your debts and pay the essential debts first.

Essential Debts
-Rent (you need somewhere to live)

-Mortgage (if your financial crisis looks long term you may be better off to sell your     home and rent at a lower price)

-Utility bills (water, gas, electric, telephone- its not safe or smart to be without utilities)

-Equipment Payment (if you don't pay you face repossession and your ability to earn a living)

-Car Payment (consider selling and getting a less expensive car or selling to avoid a repossession)

-Child Support (if you don't pay you could go to jail - try going to court to have the monthly support amount reduced)

-Secured loans linked to specific property (if you want to keep the property)

-IRS taxes (try negotiating a monthly payment plan before collection action is taken against you).

Nonessential Debts
-Credit and charge cards including department store and gas cards (credit rating will be effected, you will lose credit privileges and the creditor may sue)

-Loans from family or friends (least likely to sue)

-Subscriptions

-Unsecured Loans.

Some debts can be either essential or nonessential and must be determined by you.

-Auto insurance (in some states you can lose your license if you drive without insurance)

-Medical insurance (if you are under medical care it may be imperative to maintain)

-Court judgments (may be at risk for garnishment)

-Student loans (may be at risk for wage garnishment) 

Always pay essential debts first but do not write a bad check. It is against the law to write a bad check in all 50 states. Penalties, fees and damages all vary state to state. If you inadvertently write a bad check make it good as soon as possible.

Frequently Asked Questions

Is it legal for creditors to constantly hassle me?

No. The Fair Debt Collection Practices Act is the federal law that dictates how and when a bill collector may contact you and prohibits abusive practices by debt collectors.

A debt collector may only call between the hours of 8am-9pm and must honor a written request to stop further contact. Any written requests should be sent certified mail return receipt requested and you should keep a copy of all correspondence for your records.

My student loan is in default. What can I do?

Contact the loan holder and ask that they rehabilitate your loan. The loan holder must negotiate a reasonable and affordable repayment plan based on your income and expenses. After 12 consecutive payments your loan comes out of default.

The next article will address Dealing with Debt - The Recovery Process.

This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century.

Contributions to this article were made by Shasta May, Director Business Development for PBS.  If you would like further information, please contact us at 800-697-5153.  Visit our Web Site at www.pbstax.com.

Everyone's financial situation is different.  This article does not give and is not intended to give specific accounting and/or tax advice.  Please consult with your own tax or accounting professional.