Creditors can’t throw you in jail just because you can’t pay some of your bills. Depending on the circumstances, though, they can turn over your account to collections, sue you, garnishee your wages, repossess collateral, or foreclose on your home.
If you are behind on any of your bills, the rights and remedies that the collector uses to get you to bring your bill up-to-date depends on several factors:
Nine out of ten creditors will negotiate new repayment schedules with consumers who are having trouble paying their bills. Don’t wait until you receive collection calls or dunning letters to contact your creditors. Once you’ve decided how much you can pay, and how long it will take you to get back to your regular payment schedule, pick up the phone and contact your creditors. If you are scared to call them, ask someone to sit with you while you dial the phone. It’s easy to procrastinate on this, but the longer you wait, the less obliging the creditor is likely to be.
Set Your Priorities
In a financial crunch, some bills must be paid immediately, while others may wait. For some bills, smaller payments may satisfy the creditor until you get back on your feet. (I am assuming here that you want to try to pay all your bills and don’t want to sell the house or the car or any other asset that is secured by a loan.) Here are some guidelines for juggling your bills:
The bills are piling up, but your checking account is already overdrawn. Your clunker just breathed its last breath on the highway, and the garage wants $50 (that you don’t have) to tow it to the dump. Your friendly banker is calling to find out why you haven’t paid your MasterCard bill in two months. What do you do?
To figure your debt/income ratio, gather your most recent credit billing statements. If you don’t receive a monthly statement for some bills—your car loan, for example—call the creditor for your current balance. This is very important. Your rough idea of your balance may be completely different from what you actually owe.
Debt/Income Ratios
Now, list all your bills in one column. In a second column, list your monthly payments. In a third column, list the total amount you still owe on those bills. (Be sure to list your current outstanding balance, not the original amount of the loan.) Don’t include your utilities or taxes as debts here.