Saturday, February 14, 2009

A Little Financial Information...

For the 5 years before I moved over to our IT Department, I was a debt counselor for the non-profit consumer credit counseling service (CCCS) where I work. The other day my brother-in-law, who is a magazine editor, asked me if I had any tips for people on the ropes financially. "We get questions like that more and more often," he said.

We are definitely getting more and more too, as I wrote in an earlier post! So even though I'm not an official counselor anymore, I thought I would pass along to you what I told him. To be tell you the truth, this is actually standard issue advice that any (honest) financial adviser would give you. So, in roughly ascending order corresponding to the nastiness of your situation:

1.) Do a detailed budget. Many of the people we counsel just need some help structuring their expenses and income. Once that's done they can cut expenses or look for alternative income to make things balance out. The tools for this are all over the Internet and a lot of people can do it on their own with a little self-discipline. But if you need help with it, an accredited CCCS agency will generally do this type of counseling for free (see point 4 to find one).

2.) Stay in touch with your creditors. Perhaps they seem like "the enemy" but they know what the economy is like and their bottom line is that they just want their money. It's not always comfortable but it is best to contact them as early as possible if you run into a problem. DON'T wait until they send you to a collection agency; those are much more difficult to work anything out with. Your original creditor will often be willing to work out a payment plan that you can handle (see the next point).

3.) Be aware that most creditors offer special programs for people having problems paying credit card bills or home loans. In the case of credit cards or loans, some of these can be accessed by telling the lender you're interested in an "Internal Program," "Forbearance Program," or "Hardship Program" (the terms differ among creditors). Others however are available only through debt management agencies, particularly those programs that are targeted at saving homes.

4.) If you need help, make sure the agency you turn to is a non-profit and accredited with the National Foundation for Credit Counseling (NFCC). A list of the ones near you can be found at the NFCC website. This is especially important if you are in danger of loosing your home; there are numerous scam artists active at this time who just want to steal your money.

5.) If at all possible, try to pay something on your bills each month -- even if you can't pay the full amount. This, along with staying in touch with your creditors, does two main things: a.) Gives the creditors confidence that you are making an effort, and b.) Provides a paper trail of your good faith effort to pay your debts. This can be important should you ever have to go to court.

6.) Never ignore a summons. You would be surprised how many people do, and it gets them into very bad trouble. If you do not appear in court, the judge will typically just grant the collection agency's request for a judgment against you. That can mean garnishment of wages (if it's allowed in your state), confiscation of property, and liens against your home. But if you are there and bring evidence of your good faith effort to pay your debt, the outcome can be much better.

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