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Times can be tough when you lose your job or have a reduced income or a sudden emergency or situation which has reduced your cash flow. Almost every adult will face a financial crisis sometime in their life. You are not alone. People have gone through what you have and many have recovered from the disaster.
Despite your unfortunate set of circumstances, the bills have to get paid. Being unable to make a bill payment is a stressful situation, especially if you don't have any emergency savings or a backup plan or a way to create more money. Many families have split up over financial difficulties they were unable to resolve. People have been known to have nervous breakdowns, depression and even attempt or commit suicide over the seemingly hopeless situation.
Fortunately, most companies will assist their customers facing financial difficulties. As long as you are honest, up front, and do this as soon as you see the problem, they will work with you. If you have always strived to pay your bills on time and have good credit, these situations can be especially stressful. Hard times do not necessarily mean your credit will be ruined. Communication and keeping your promises to those you owe is the key to saving your reputation.
The fear of facing those you owe when you don't have an answer of when you can pay is the worst part of the stress burden. Sometimes we may not have a clue on how to pay something back and fear bill collectors will call constantly demanding an answer you cannot give them which will remind you of your hopeless situation making you feel worse. This is why it is best to deal with the original company you owe when you are in trouble before it goes into collection. The original companies have more at stake and are therefore willing to work with you. By the time it goes to a collection agency it is often as a sold debt the original company has already written off. Those who buy sold debts don't care about your situation, they care about the money owed.
The best way to get control of your situation before spiraling out of control is to assess your debt situation and make priorities of what needs to be paid. Obviously you will need to put a priority on your housing whether it is rent or mortgage. You are also going to want to eat, have heat/air, electricity, and water. Aside from your basic needs, what else can you not live without and what can you cut out?
If you have an emergency, you might want to contact your utility company and see if there are programs to help those in need. You might also want to check with government and local welfare assistance that can give you help during your time of need. You might be able to get payment for food, utilities, clothing, medical expenses and rent. If you can get help with some of your necessities, it will free up your money to pay some of your other bills.
If you have tried those options, you can factor in what you are really working with in income. If your basics have been covered or partially covered, then you need to prioritize your other expenses and debts. For instance, if you have car payments at $500 a month, but live along a bus route, you may consider asking if your loan has a clause to return the car without penalty to your credit which will free you from that debt. Or you might have things you no longer use that can be sold to pay down your outstanding debt.
Most creditors are willing to give you a 1-3 month deterrent in paying your bill without penalty, so long as you request it before your payment is due. They figure that is more than enough time to catch up. If it is 3 months and you still cannot make payments, call them and offer nominal payments you can afford. The worst they can do is say no, mark your credit negatively and close your account. In the big picture it is frustrating if you had perfect credit, but it is not the end of the world. You can also make comments on your own credit record to explain the situation and in 7 years the mark will be removed.
No matter what reason you have for not making payments, you should always contact the company. Most people get in trouble because they do not communicate with the companies before the damage is done. It might feel embarrassing to contact companies and admit you cannot pay your bills, but keep in mind the people at the company are human and will appreciate your honesty and will work with you. It is best to do it sooner than later when you are less likely to get cooperation.
What about consumer credit counseling services? The ads make it sound as if all you have to do is call them with all your bills in hand and they take care of your problems for you. It is not always as simple as the commercials sound. Often this is the tempting offer for people who are beyond the point where they are dealing directly with the original creditor, but are now in collections.
Some of these companies are non-profit agencies while others are business or worse, scams. The approaches to the solution to your debt can vary from making reduced payments to filing for Chapter 7 or 13 bankruptcy.
A non-profit service evaluates your situation, calculates your debts, expenses, and income. They will contact your creditors on your behalf and arrange for a way to make this debt easier for you to handle in the form of lower interest rates, forgiving late fees and over-limit charges, and repayment plans where you make payment to the service and they disburse the payments to your creditors. In addition, these services will help you set up a budget you can live with and encourage you to destroy any credit cards that may put you into deeper debt.
Non-profit companies are usually paid by the creditors as a result of being able to recoup most of their money. Others work purely on donation or are volunteers.
The ones that work for a profit often work the same way as the non-profit companies, but they will either request an upfront fee from you or get a percentage of your payments you make to the creditors each month.
Sometimes these companies have pre-arranged agreements with many debt collecting agencies who will readily work with them. Then there are some cases where the creditor will not work with your third party leaving you to work out another arrangement.
A Chapter 7 bankruptcy is total absolution of your debts. Chapter 13 is a payment plan approved by the court which ties you to making those payments through the court. While these may seem like tempting offers presented by some of these companies, it can backfire. Bankruptcy stays on your record for 10 years. In the case of Chapter 13, if you miss payments the courts can garnish your wages or drop the agreement and you will have worse credit than when you started. In the case of Chapter 7, you cannot reapply for another 10 years, so any debt you accumulate must be paid.
Always check out to see if a company is legitimate before you agree to give them your personal details. Non-profit consumer credit counseling agencies should be accredited by the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA).
Avoid companies that seem to push you for a fee or make claims that they cannot legally deliver such as giving you a new social security number, erasing items on your record that cannot be erased, or guaranteeing you don't have to pay anything back.
