Five Weekly Debt Solutions to Avoid Payment Shock

[Aug 11, 2009.]

 

In an interview with the Longview News-Journal, the Chief Executive Officer of the Consumer Protection interview noted that 37 million Americans found themselves facing debt collectors in 2008. Steve Sussman went on to say that eighty percent of those debtors, with no clear ideas about how to get out of debt, simply ignore the calls and letters from creditors and collections agencies. Sadly, many Americans who could have staved off more serious financial impact by using debt consolidation loans end up paying more significant finance charges and late fees. Five simple actions every week can keep your bills from dominating your life:

• Review credit card statements regularly. With the recent passage of new credit card regulations that take effect in February 2010, many credit card issuers have changed account terms or adjusted credit lines. If you missed a notification that your account terms have changed, you could run the risk of missing revised payment dates, exceeding credit limits, or triggering penalty interest rates. If you consolidate credit card debt onto a single account, keep checking dormant cards for fees or penalties, especially with new “inactivity fees” becoming popular among some lenders.


• Check mortgage documentation for dates of any rate changes. “Payment shock” strikes Americans who don’t realize the long term impact of changes to secured loans or leases. For instance, a five year ARM that looked attractive at closing can turn into a budget nightmare when the promotional interest period ends.


• Write down the anniversary dates for any recurring expenses. Budgeting to get out of debt also requires keeping regular expenses organized. Most of us have no problem remembering to budget routine expenses, like groceries, utilities, and mortgage payments. Annual or quarterly expenses, like magazine subscriptions, association memberships, or merchandise installment payments, can increase credit card debt, especially when charged automatically. Tracking automated payments can help you prepare to absorb predictable expenses.


• Ask about forbearance on student loans and other government-backed debts. While you look for broader debt solutions, some personal finance experts note that forbearance programs can offer temporary debt relief. Many education, housing, and health debts payable to government offices or to government sponsored organizations can qualify for short term payment holidays. You still accrue interest on your debts during a forbearance, but you can use the money you would have used to pay those bills to reduce debt in other parts of your life.


• Track and reply to any correspondence from debt collectors. Credit consolidation advocates recommend keeping a journal of every communication you receive from your creditors and their collection agencies. It has become common for credit card debt to get sold off to independent collectors in shorter cycles, reducing the amount of time it takes to go from a few missed payments to a major collection action. A simple “cease communication” letter sent by certified mail to a debt collector can prevent harassing calls at your home or office, but it doesn’t stop the inflated fees or finance charges tacked on as collectors sell portfolios to each other. Credit consolidation specialists can use the information you collect to determine how much debt you actually owe, and how many of those fees can be negotiated away.

It takes courage to get out of debt, especially when looking at the mailbox has become painful and embarrassing. If you can get over your fear and follow these five steps, you can significantly minimize the impact of missed credit card payments, sudden finance rate increases, and other events that cause many Americans to face collection activity.

 

About Author:

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.