Credit Problems, 

Credit Solutions

If you are in over your head, there are several possibilities.

1. Bankruptcy. One form of personal bankruptcy (Chapter 13) enables you to pay your creditors over time, and requires them to accept that plan. This does not protect items which are mortgaged,​ and which could be repossessed, however.

If you have taken bankruptcy, you can not do so again for another seven years. This may actually improve your credit if it is presently ruined, because future creditors will know that you don't owe anybody else now, and you are currently bankruptcy-proof.

On the other hand, a chapter 13 bankruptcy, which allows you to continue paying your creditors, will scare off new creditors, which creates a great control on your will power. But a bad credit record would scare off those creditors, too.

Keep in mind also, that bankruptcy is not a "hard fought" procedure, with lawyers grilling and cross-examining you with unanswerable questions. More likely, the courtroom will probably be practically empty, with the other people there just waiting for their own cases to come up.

Rather than heated argument being the case, if a creditor is there, he will probably just ask a question like, "where is the lawn mower," or car or something (if it is mortgaged) so he will know where to pick it up. The process may take 15 minutes, and you can go home.

Though bankruptcy law was changed in 2005, and some bankruptors are required to use Chapter 13 now, this only applies to those having above the median income level in their state. In the United states, the median level is about $50,000 for an individual living alone. In Mississippi it is around $46,000.

If your income is below that, you can still take total bankruptcy with little change from the old law. Total bankruptcy (Chapter 7) means you don't have to pay your creditors at all. However, unpaid mortgaged property can be repossessed.

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2. Consumer Credit Counseling. This non-profit agency will ask you to make a budget you can live with, and use the difference between that and your income, to pay your creditors. They will ask you to cut up your credit cards, and charge nothing until your debts are paid. Then they will contact your creditors and ask them to take less per month. Because your creditors know that your spending is under control, they will probably agree to that.

Why would a creditor lower your payments if you are using CCC? Because they understand that, when a person is in financial hot water, he starts juggling his payments, with other creditors competing for what is there. As it is now, he may be getting a payment every other month, other creditors may get something similar, and money is wasted on correspondence and phone calls.

Further, if you get backed into a corner, he knows you may take bankruptcy, and he loses the whole thing. But, if you are paying say, 75% of a regular payment every month, he is getting something, compared to nothing, and doesn't have to chase you for it. Once you are on the program, he isn't competing with other creditors for your next payment.

Beware of commercial companies offering a similar service. The fee they charge is much higher than the fee charged by a non-profit like CCC.

Be cautious when taking bankruptcy. A bankruptor reputation affects your credit. On the other hand, if you are deeply in debt and behind on your payments, your credit is likely already bad, anyway.

Also, some merchants and lenders, who specialize in attracting poor credit risks (at high prices and interest rates) may consider your credit improved, because you can't do it again for seven years. However, seven years later, some potential creditors may become wary of you, if your recent pay record has not been good.  

3. Re-financing. If a debt is more than half paid, paying it off with a new loan (either from the same, or from a different lender) can reduce your monthly payments, if the length of repayment is stretched out.

If you are several payments behind, and now have an improved income, refinancing can bring your payments up to date, with the expectation that you can now keep them up to date. In this case, all the payments that are behind are moved to the end of the contract period, so to speak, and the size of your payments may remain the same, though you don't have to make double payments to catch up.

If you have built up much equity in your home, you can re-finance to lower your monthly payments. Of course, the object is to help you get out of debt, but the relief of lower payments may make it tempting to incur -- yes, more debts. It is important that if you use this option, that you also use the opportunity to reduce your other debts, and to keep spending under control.

Lower your house payments, through lenders like Home Refinancing or your current mortgage holder. Here are hundreds more such lenders: More Mortgage Companies

----> I'm not recommending any of these businesses. <-----

The above is just a list I found on the internet. If they are good businesses, keep in mind that they can't help you unless your mortgage is already largely paid off, or you convert a short-term mortgage to a long-term one.

4. Consolidation. Combining your debts into a single debt can reduce your monthly payments, if they are already partly paid off, and the term of repayment is longer than the existing remaining terms you now have. If the debts are new, consolidation won't reduce your monthly payments by much.

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The business at the following e-mail address will loan you money against the equity in your house. Remember, if you don't handle it responsibly, you could lose your house:

[email protected] (Disclaimer: I don't know who any of the people in the links on this page are. I found them all on the internet, and don't vouch for any of them.)

5. Debt reduction loans. These can include a plan by which the lender lends you one payment to all of your creditors each month. They make these payments directly to each of your creditors, and you simply make one payment to that lender.

That payment can be smaller than your total monthly payment had been, because the debt to the new lender is small at first. Once your old debts are paid off, you continue paying the new creditor the same amount you had been doing.

The disadvantage to this is that if you quit before the program is finished, you then owe all of your old creditors, plus the new one too, so your total monthly payments will actually be larger. Another disadvantage is that the new lender may charge high fees for this service.

Of course, if you are a credit addict, one danger is that, having lower monthly payments, you may be tempted to go out and charge more stuff -- which means you will just be deeper over your head in the future.

Here's an example: Debt Transfer

Notice they say not to list Home Loans, Car Loans, or student loans. Apparently the term would be too long, and they need it to end, so you will enter into a period in which you are paying them off, but they are no longer paying on the earlier debt. They may also want to take a second mortgage on your car or house. (I haven't checked.)

You shouldn't use credit for things you just want, but don't need. This goes double if you are having debt problems already. You probably need to use credit to buy large things, like a car or a house, but even then you should buy something within your means. Buying a Cadillac on a Chevrolet income, or a new car when you can only afford a used car, will come back and bite you later.

6. Talk your problem over with the creditor. They may be able to work something out, if they understand your problem, and know that you are dealing honestly with them. If the person you are talking to seems young, they may not have authority to negotiate, so you might want to talk to the manager. If instead you run and hide, that sets off alarm bells, and they will be merciless with what they call a "skip."

7. Sell something. If it is something that could raise a large sum, it will help you to pay off the creditors. If you owe on it, that will reduce your monthly payments. (No matter that you really, really wanted it, look at the problems its price has given you. You can buy another boat, or another motorcycle, some other year.)

8. Decide what you don't need. If you can do without a flight home this Christmas, or can drive the old car another year, or could use a fan rather than the air conditioner this summer, avoid expenses that would only burden you further in the long run.

9. If you can make all of your monthly payments, and have anything left over, make double payments on the smallest-balance debt. Once you have that paid off, you will have more each month to cover the other debts. Then it will be easier to do the same for the next one, and so on.

10. Take a second job, even part-time, and then don't buy anything extra with the extra cash. Instead, use the money to increase your debt payments. (And be careful of your marriage if you're spending a lot of time at work over an extended period.)

11. Servicemembers Civil Relief Act -- If you are in the military, you have some protections, such as limiting interest to 6%. If you are overseas or on extended assignment, you can prevent being called to court at home. If you were in the reserves, and were called to active duty, you have additional protection. See: 

If you have a problem, here are some things NOT to do:

1. Don't hide from or avoid the creditor. Don't ignore your mail. This causes red flags to go up, and the lender will be far more inflexible with you if he believes you are risky to deal with.

The person who moves away and breaks contact is called a "skip." "Skip tracing" is a well-developed art among creditors. Once you are located, the creditor will have no trust nor mercy in regard to negotiating terms of payment. Skipping out is a bad strategy, and not advisable.

2. Don't hang up the telephone, curse or threaten the caller. Do write down the name of any caller who is inappropriate, and exactly what s/he said. Copy the number on your caller ID.

3. Don't wait until the problem is critical before talking with the creditor. Notify the creditor before they know there is a problem. If they see you as honest and forthright, they will be far more likely to be patient and helpful. If you have a realistic plan to offer, they will be even more so.

Have a workable plan for what you can do later. If your financial situation has improved, ask to refinance the debt, so that you will owe only one payment per month. Let them know that you are requesting this in order to avoid being forced into bankruptcy (if that is in fact the case.)

4. Don't let letters and calls get to your emotions. You are dealing with strictly a business matter, not a personal enemy.

Don't be upset about a computer that sends you a pre-printed form letter reading "Frankly, I'm disappointed..." The same machine sends the same letter to thousands of other people, too. In the end, it's just ink on scraps of paper, and you won't get lynched or horsewhipped over it. The machine's internal sense of disappointment is its own problem.

The people at a creditor's office (probably) don't know you, and aren't personally worrying about you as an individual. They have hundreds, or even thousands of other customers to deal with, and you are just a name in their files. It's nothing personal, and they aren't excited about you in particular. They are just concerned with the account, along with thousands of other accounts.

They are, however, sometimes experts at manipulation, such as writing collection letters that get people excited. They're dealing with technique, and not personally with you. If you keep that in mind, you can ignore their "buzz phrases," and just handle a business matter as a business matter, and as nothing personal.

5. Don't "sucker" in on advertisements offering easy money. Of course, that is the commodity they have to sell, and they want you to take it. Lending it out and trying to get it back is the business they're in, and they work on predictable averages.

Beware the check for $4,000 that all you have to do is sign your name and cash it. You have to pay it back plus interest, so reserve that for when you actually need it, and know in advance, how you are going to repay it.

If it is a major credit card company, they may offer the money for 0% for the first 18 months (plus a 3% or 4% transfer fee.) You should still not take it unless you actually need it. At the end of 18 months you have to pay it back, and the interest rate then may be 18% or 24% after that. Will you be able to make more than just the minimum payment at that time?

Consider the price (interest rate) and monthly payments in addition to your current outgo, consider the future security of your source of income, and most importantly, whether you actually need what you want to buy, or could do better if you bought it later.

A discount sale isn't a reason to grab merchandise you don't need. There will be other sales next month, next year, and so on. Christmas also is not a reason to splurge if you can't afford it. If you keep your Christmas or Hanukkah lean, your January and February will go much easier.

Also, consider the hidden costs in what looks like a good deal. Zero interest for 90 days, plus a 3% transfer fee, means 1% per month, or 12% per year. And after 90 days, the rate goes up. A late fee may also apply, which might be $35 if you're one day late, and the payment is only $15.

A figure like 5% add-on interest for a one year loan comes out to about 10% simple interest, considering that half the loan is already paid in six months, and you are still paying the same interest on the beginning amount, and even when you have only a single payment left. And interest deducted from the loan in advance is even higher.

Remember that you always pay more if you buy on credit. If you can make your car last three more years, and put the car payments in the bank, then when you buy your next car for cash, you will pay perhaps 25% less, because you are not paying interest, and you will have bargaining power if you have cash to offer.

6. Become familiar with your state's consumer credit laws. Many states have laws against calling you late at night, at your employment, calling your employer, calling you every day or several times per day, making insults or personal threats, or asking for a deficiency balance on something that is already repossessed. (Once they have repossessed what was mortgaged, they can't come back and ask for more, at least not in Oklahoma.)

Some states allow a cooling-off period on merchandise sold at the home, in which you can change your mind and refuse the merchandise.

It is possible that your debt has expired. The various states have statutes of limitation varying from 3 years to 20 years, depending on the type of debt involved. See:

If you believe a creditor is breaking the law, write down as much information as possible. Ask a caller's name, note what appears on the Caller ID, write down the time and date of a call and what was said, and keep letters which seem improper.

Learn the proper reporting agency in your state, whether it is a Consumer Affairs office or a District Attorney's office or the Attorney General. Report suspected violations to the proper office.

Eviction: Laws are different in every state, but in Oklahoma, the following is true:

The eviction notice delivered by a landlord is a Notice To Quit. After 5 or 10 days, the landlord must then file suit. They may bill the attorney's fee to you. An eviction notice signed by a judge and delivered by a sheriff's deputy, or professional process server is legally binding.

Notice whether they counted right on the eviction date. Five days from court on Monday at 1 PM would expire at 1 PM on Saturday, not Friday. They can't legally change your lock on Friday, because it hasn't been five full days since court.

To obtain a legal eviction notice, the landlord must go to the courthouse, pay a fee and wait for a court date, maybe a week later. After obtaining a judgment in court, it may take a day for paperwork to filter down to the sheriff's office. The deputies have a lot of people to see besides you, so it may take days before they serve the notice to you. By that time, several days may have gone by.

If the landlord can prove in court that you remained in the property not in good faith, he can recover double the rental rate (in some states) for the time you overstayed. Not in good faith means you were not trying to find another place, and just stayed because you wanted to. "Recover" means he gets a piece of paper saying you owe him some money.

If you have a job, he can garnish your wages (in some states). If you don't, he may have no way of getting it, unless you have a bank account and he knows where it is. If he tries to attach funds in your bank account, and there is less there than owed, he has to go through the same process to try again later, which costs him a filing fee.

If you have not been legally evicted, the landlord can not cut off your water or other utilities in Oklahoma, even if he is supplying the utilities. He can not change the lock on the door or padlock or remove the door. He can not store your belongings and hold them hostage.

He violates the law if he stores your property (burglary.) If he attempts these things, call the police. You can also take him to small claims court and may recover double actual damages. Damages can include discomfort and inconvenience he has caused.

In Oklahoma, if the landlord believes with good reason that you have abandoned your residence and personal property, he can remove and dispose of the personal property. If he does this without good reason to believe the property is abandoned, he is in legal hot water.

If he calls the utility company and tells them to turn off your utility, call the company and tell them to turn it back on (If you pay the bill to the company, and if your utility bill is paid up, of course, ) Get as much information as possible about who requested it to be turned off, because he would have broken the law by doing that.

If this is the law in your state, you need not be panicked by threats to do those things. If you can't afford a lawyer, call the Legal Aid Society, which may go by various other names in your locality. In some Oklahoma cities it may be West Texas Legal Aid. You might also call the sheriff's office and ask about conditions in your state, such as limits on what the landlord can do, or time it takes to serve a paper, which is a situation they have to deal with every day. You might also research that information on the internet.

Though the landlord may tell you that you break the law by turning your water back on or removing the padlock, he may be completely wrong, and just attempting to make you nervous. It is important to know what the law in your state says about this.

You might check one of the following pages as a beginning to understanding your state's laws:

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Letters to send to a debt collector: (cut and paste from http to 226.)

Since this is a mental health page, the point is not to let a financial setback get you down. Problems have solutions. Those solutions may not immediately be the level of comfort you once had or would like to have, but they are a lot better than the bottomless pit the financial reversal had seemed at first.

There IS light at the end of the tunnel. As they say, "This too shall pass." A debt-free life is something you can look forward to, and improved financial conditions tomorrow are possible too, if you handle the problems well today.