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A woman was told by a collection agency that her credit card company was going to sue her for fraud because she used her credit card after charge privileges had been suspended by the creditor. She didn’t think that was the case, so she went back through her records, then called the credit card company to find out what they were talking about. “We don’t have any intention of suing you for fraud,” she was told. She called back the collection agency and told them what she had learned and accused them of breaking the law in trying to collect the debt. They didn’t call her again.

In 1978, Congress passed the Fair Debt Collection Practices Act to protect consumers from some of the most offensive collection tactics. The FDCPA protects debtors from harassment, public embarrassment, and unfair collection practices. It doesn’t stop debt collectors from collecting debts, but it does set reasonable limits on how and when they can attempt to collect debts.

The FDCPA applies to outside collection agencies, not internal debt collectors. If your credit card issuer or another lender is trying to collect the money you owe them directly, then this law does not apply. (There may be state laws, however, that apply to the creditor’s activities.) If your card issuer, instead of using its own name, uses a name that would make someone think it is an outside collection agency, it would be covered by this law.

Debt collectors aren’t big mean guys who break customers’ kneecaps when they can’t pay. Nevertheless, when you’re in a financial crunch, dealing with debt collectors can be annoying or even frightening. It doesn’t necessarily have to be that way.

Most collectors are professionals and conduct their business in a semireasonable (though often high-pressure) manner. There are some, though, that may use intimidation or illegal tactics to coerce consumers into paying past-due bills. The Federal Trade Commission reports that complaints about debt-collection companies are one of the top three categories by number of complaints.

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.

 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.

 While you may not be able to wipe the slate clean, there are ways you can improve your credit record. Here are steps we suggest:

Dispute Information

 If you find mistakes on your report, you absolutely should dispute them. Some might not result in a change in your credit score (closing old accounts, for example), but others may result in a dramatic improvement (getting an inaccurate judgment or old collection account off your file, for example).