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by sitecore\kmcgrigg on March 03, 2011

If a decrease in income makes it difficult or impossible to maintain debt payments, the best course of action is to communicate with each of your creditors explaining your situation and how you plan to repay your debt. Tell them that you are unable, not unwilling, to repay as agreed. Remember, it is always best to contact your creditors before they have to contact you.

The best way to contact your creditors is in writing; after you have written your letters:

  • Maintain accurate files. Before mailing your letters, make copies to keep for your files. If you must negotiate over the phone, keep detailed notes including the representative’s name, title and phone number. Follow-up any phone conversations in writing.
  • Stay organized. Write a summary list of your financial plan for quick reference. Revisit the plan regularly to make sure you are on-track.
  • Be prepared for calls. After sending your letters, you can expect some of your creditors to call with additional questions. If they do, be honest and courteous.
  • Keep your end of the bargain. If you are unable to make agreed upon payments, contact your creditors immediately to renegotiate.

Following is more information on dealing with specific types of creditors.  Of course, the outcome can vary from creditor to creditor. 

Utility companies
Each utility company has its own procedure to follow before disconnecting service. The procedure generally includes notification in person, by mail or by phone. Before shutting off service, the company may offer a budget plan to help you repay any past due amount. Remember, utility companies do not want to discontinue your service. They might even have information about available emergency funds to help you pay past bills.

Be sure to ask for help at the first sign of financial trouble. Once your utilities are disconnected, you may have to pay the past due bill in full or pay a substantial deposit to reinitiate service. You might also have to reapply for the utility and pay installation charges.

Housing lenders
If you do not make your mortgage payments, you home could be foreclosed. Fortunately, there are many alternatives to foreclosure. For example, if you have the amount of money required bring your loan current, the mortgage company will reinstate your mortgage. You may also contact your mortgage company and work out a repayment plan.

For help, call a HUD-certified housing counselor. If your home loan is backed by the Department of Veteran’s Affairs, call your local VA center. You can also check with your local United Way for assistance.

If you are a renter, contact your landlord about your situation immediately. The landlord may accept partial payment for one or two months. You may want to look for less expensive housing, but be realistic and remember to include moving expenses, deposits and family adjustments as you calculate costs. If it is a private landlord and you or family members are able, you may be able to do some maintenance work in place of part of your rental costs.

Car and other vehicle lenders
If you cannot make your car or other vehicle payments, they can be repossessed. Repossession means that the creditor takes the vehicle and it is sold at a public or private auction. If the vehicle is sold for less than the amount still owed on it, as is often the case, you are liable for the remainder that is owed on the vehicle.

Check with the creditor to see if the loan can be rewritten for lower monthly payments. Ask for an extension, with the extension fee attached to the end of the loan. If you do not need the vehicle, if it is a second car or a recreational vehicle, ask the creditor if you could sell the vehicle and pay the creditor off with what you receive. Also, find out about the procedure if you sold the vehicle to someone who would take over payments.

Credit card issuers
Late fees and over-the-limit charges can quickly add up to a debt problem. Many creditors are also raising rates and even closing accounts as penalties for late payments. In addition, nonpayment could lead to your accounts being canceled and the debt may be turned over to a collection agency.

Notifying your creditors of your changed financial situation may not stop all collection activity; however, many creditors are likely to assist by waiving interest, granting extensions or reducing payments. Do not be tempted to replace income with credit card cash advances. Available credit should be used extremely cautiously.

Insurance issuers
Do not allow insurance to lapse. Write your insurers immediately and explain your situation. Ask what payment options are available. Check with your insurance company; there may be a grace period in making payments from 10 to 30 days. Determine your minimum needs for insurance. Cancel duplicate and non-essential policies. For basic essential policies consider these options:

  • Car Insurance. By law, you may need to retain your liability coverage. You can research the possibility of reducing your premium costs by increasing the deductible on your collision and comprehensive coverage.
  • Health Insurance. Check to see if the health insurance provided by your former employer is continued. If coverage is not available or if you can’t afford the premium, find out if you qualify for Medicaid. Also, check into policies that would pay for major hospitalization and find out what community services are available for routine medical concerns.
  • Life Insurance. Consider changing your policy to a less expensive form. Check into the possibility of borrowing money on your policy to pay premiums.

For more information on surviving an income loss read When the income decreases, it pays to set priorities.


Anonymous says:
March 04, 2011

Its one of the first thing someone must do after they have lost the job.Your income might stop but your expenses won't, therefore its important to find ways to reduce it.Advising your creditor about your unemployment is very important as you can request a payment holiday or less payment arrangement on these grounds. When you speak to your creditors about your redundancy, they want to know everything, from why you lost your job, to your current income and when are you getting back to work.Be sure to answer them correctly and negotiate with them to do things sensibly.

Anonymous says:
March 16, 2011

This is what you can do, Joe. If it's a cell phone, call your wireless provider and see if they can block the numbers from the creditors. Unfortunately, if the creditors are calling from blocked numbers, they won't be able to stop the calls.

Greg says:
March 30, 2011

I have been unemployed since October, and quickly had to make very hard choices-- pay the mortgage, utilities, and provide food, or pay the credit card companies. I could not do both, so have chosen the former. I've written & secure e-mailed all creditors (after I could no longer make my debt management plan payments), but all of then want to negotiate by phone, which I do not want to do (I am using the phone to look for a new job). We cancelled our land line and other services to reduce expenses. I have also used the cell-phone number blocking, which has helped. In these circumstances, if I cannot pay until I find a new job, I will not sacrifice my home or the health of my family to pay credit card debts, although I acknowledge responsibility for these debts. As the credit card companies begin to send accounts out for collection, I see a bankruptcy chapter 7 as one of my last options, and we have received bankruptcy counseling. Kim, in these tough circumstances, what other options, if any, do we have? We cannot borrow from relatives, and we have sold everything we can, including the car I used to use for work.

Jeff says:
March 18, 2011

I'm wondering what I can do, I am currently unemployed but I'm a full time student in college, my unemployment has run out and I have a huge private student loan debt from years ago when I went to ITT Tech, one of the creditors is threatening to take legal action to freeze my bank account which holds my refunded student aid which helps keep me afloat while I look for work.

joe says:
March 10, 2011

I have contacted one of my creditors and explained my new situation. I am no longer receiving unemployment and I can pay 25.00 a month until I find a job. This two little I will see what I can do and let you know. Can you please stop the call 5 times a day from the am to pm every day? Sorry calls are on auto call. What can I do to stop the call short of disconnecting my phone?

Kim at MMI says:
March 16, 2011

Hi Joe, You can write to this collection agency demanding they not contact you anymore about this account. The Federal "Fair Debt Collection Practices Act" (FDCPA) states, "If a consumer notifies a debt collector in writing that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt, except - (1) advise the consumer that the debt collector's further efforts are being terminated; (2) notify that specific remedies may be invoked; (3) that the debt collector or creditor intends to invoke a specified remedy." This is quoting directly from the FDCPA. Make sure, in your letter, you mention you are aware of this federal law and this provision of the law. If you have questions about this Act, call the Federal Trade Commission's Consumer Response Center at 877-382-4357. Be sure to send your letter to this collection agency by certified mail, return receipt requested so you have proof they received your "cease and desist" letter. Please be aware that taking this action does not alleviate you of your responsibility for the debt. In some cases, sending a cease and desist letter can actually escalate the collection process. Best of luck to you, Kim

Tiffany says:
October 22, 2012

I know in advance that I will be out of work by March 2013. I want to get a head start on some sort of arrangement with my creditors.

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