|Gary Foreman is a former Certified Financial Planner (CFP) who currently writes
about family finances and edits
The Dollar Stretcher website
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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.
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.
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
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
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
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
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.
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.
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.
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
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
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.