Friday, 19 October 2012

Getting Out of Debt - Part 3 - Dealing with Creditors

Threatening letters, constant phone calls, mobile phone texts,  at all times of the day and even on the weekend...

It's enough to push you over the edge. Sadly for some, that's exactly what happens. But don't let it happen you!

There are various ways of dealing with creditors and the constant pressure techniques they put you under in order to try and extract yet more money from you and your family.

Believe it or not, they don't hold all the cards, and there are many things you can do to come to negotiate things in your favour for an agreement that suits you, not them. At the same time you can also take the sting out of their high pressure tactics.

First of all, there's a lot of help and advice out there if it's needed. Face to face, there's the CAB (Citizen's Advice Bureau), on the phone there's the National Debtline, and on the internet there's plenty of forums where people who've been through the same thing can help and encourage you with what they've learned. There are equivalent institutions in the EU and the US as well.

Some of the forums can provide particularly useful information, as frequently, a few of the forum members are having problems with exactly the same creditors. The internet can also be used to find out exactly what your rights are in regard to creditors, and all the hoops they have to jump through to stay compliant with the law. Obviously, this information in particular is well worth knowing as it can guide you away from putting your foot in it, and also gives you ammunition to fight back if the creditor is overstepping the mark and taking the p***, which they frequently do.

Next, making contact. Unfortunately, although you won't want to, you are going to have to have some communication with your creditors. If you don't they may start applying arbitrary charges, taking you to court and all sorts of other nasty processes which are not going to be beneficial to you and will cause you yet more stress.

Write to each company advising them that you only want to be contacted in writing, stating whether this should be by post or email. In this letter you should also nominate and authorise a trusted friend or family member to talk to the creditor about your debt. This will cut down on all the phone calls and texts, although it's likely you will still receive some. Remember, at the end of the day, you can always state you want everything in writing and hang up. Nobody's forcing you to talk to this person. It's also worth noting that callers from debt collection departments often say stuff that a company wouldn't dare put down in writing.

Keep copies of ALL letters. This includes the letters and forms they send you, and copies of everything you send to them. Also, every time you write to them, you will have to send the letter via recorded delivery. Don't forget to keep the tracking stubs for these too. I know it costs quite a bit more, but debt collection companies will frequently claim they never received a letter when it suits them, so ALL letters must be sent this way, and if you ever wind up in court, proof of postage and receipt may come in quite handy when defending yourself.

Do not sign ANY letters. Write the letters on your computer, and key your name at the bottom. Some debt collection companies are extremely dodgy, and I have seen this next trick first hand - Your signature can be cut and pasted from your letter on to copy contracts which are then photocopied on headed paper, so it looks to all intents and purposes like you originally signed the document.

You should also note all phone calls whether you answer them or not, what was said, and the dates and times of the calls, then you can make a harassment complaint to the relevant regulatory body, (the OFT in the UK), if it becomes necessary.

Now let's go back to your friend or family member and why you authorised them. I did this for a friend and here's how it works:
A creditor rings up and demands to speak to the debtor. The debtor hands the call off to me whereupon the pushy and brusque telephone operator attempts to extract a repayment agreement for as much money as possible, (I imagine they are targeted on how much they can get out of people). The thing is, it's not my debt, and I'm not worried about it, so when the person on the other end of the phone tries all their pressure tactics, they won't work, because they're talking to the wrong person. 
I can calmly negotiate with the caller outlining exactly how much disposable income my friend has, and how many other debtors they have as well, which this must be shared with. Obviously funds are in short supply, otherwise my friend wouldn't be in this mess, but there's only a finite amount of money available to go round. When pressurised to increase the monthly amount, one can simply say that your friend just doesn't have any extra spare. They can't expect someone to pay what they don't have. There is only a set amount of money which they can either take or leave.
Basically, it releaves a great amount of stress, although some people may not feel happy sharing their financial woes with someone else. This negotiation can be done by yourself personally, but the call will be a very charged affair and won't be pleasant. The 3 key things to hold onto are:
  1. Your disposable income is limited. You cannot promise to pay what you have not got. 
  2.  If they do take you to court, (which they often threaten), again even the court cannot force you to pay what you don't have. You can't magic up more money so they still won't get any more cash from you and they'll possibly end up with less.
  3. A phone call won't last forever. It'll be over in no time and you can always hang up if it gets too much. 
The thing is, creditors know this. They are also businesses. Generally they won't do anything that isn't going to profit them, so on the whole they aren't really that keen on taking people to court. It costs them money to do this, and the court will look over your finances with a more reasonable eye than any creditor would. Remember, they are always pressuring you for more, so going to court means they run the risk of the monthly amount you pay to them actually being decreased.

Debt Management Companies

These offer to help handle your debts on your behalf. Avoid these like the plague. They do not have any interest in helping you become debt free, and will engineer it so that although your payments become much lower, you will spend much, much longer in debt than you ever need to be, AND they will charge you for the privilege. Basically, they will renegotiate payments with your creditors by way of "token" payments. These do little to actually reduce your balance, and if they can negotiate lower payments, so can you.

I have also worked in this part of the industry too, and it's shockingly unprofessional, which explains why they screw up so many people's accounts. Take my heartfelt advice and DON'T DO IT!

Your Disposable Income (again)

By now, if you've read the previous posts, you should already be familiar with your finances and exactly what you can and can't afford and how much actual disposable income you have.

Many creditors will want to know your income and expenditure, and make it a condition of coming to terms with you over a repayment schedule. They will claim this is to ascertain what your disposable income is, but it should come as a surprise that they will figure things a little differently than you in an attempt to justify asking you for more money. Unfortunately, you are going to have to play them at their own game.

Whilst I do not condone lying, it is actually in both yours and their best interests to "bloat" your figures somewhat, so they don't come out with a figure for your disposable income that is bigger than the one you've budgeted for yourself. The reason being, you will be over committed and won't be able to keep to the agreement, meaning you're worse off and they're not getting their money. Also, not keeping to an agreed repayment schedule that a creditor thinks is reasonable gives them an excuse to take further action against you, and nobody wants that.

From my own experience negotiating repayments, one girl I came across told me that £50 was easily enough to buy food to feed myself for a month. I explained that I really didn't want to live on nothing but beans on toast for the next couple of years, but my cries landed on deaf ears and she wouldn't back down. Ironically, (with reference to my food shopping posts), I reckon I probably could feed myself reasonably well on that amount these days.

Things to "bloat" are items such as your fuel/bus-fare/travel costs. They will only want to take into account travel for work and dismiss any extra for visiting family etc. However, family is important, and if someone falls ill, visiting them regularly may well scupper your budget if there's no "wiggle" room. Other items that can't easily be checked by way of bills etc. should be looked at too, for example, payments to other creditors can be exaggerated. Well let's face it, they'll all be playing the same game with you anyway!

There's also one other thing to discuss with them, and that is interest rates. Ask them what they are charging you and negotiate that as well. With some companies you may be lucky in that they won't charge interest at all so long as you stick to an agreement payment schedule.

Remember I mentioned Savings? (see part 2)

You also need this "bloating" to cover the payments you make into your emergency slush fund, which can be justified as your car repairs/home maintenance fund, because that's partly what it is. The thing I haven't got round to yet is the second purpose of having this fund, but first a bit about how creditors deal with bad debt.

For a time, I worked  in customer services at one of the biggest credit card companies in the world. Credit card companies like an easy life. They lend out the money and the payments come rolling in each month. The problem is having to deal with all those pesky customers as it costs money, (which is probably why they shipped my entire department over to India). So when it comes to customers who start losing them money, like bad debtors, they quickly lose interest. Unless a customer recovers quickly enough for them to be worthwhile to keep, they close the account, and sell on the debt at a discounted price to a debt collection company because at least they get back some of their cash that way.  Besides, if you've had your card for a while, they will have undoubtedly already made back the original balance they lent you in interest payments and charges, perhaps several times over.

And this is where your opportunity arises if you have a lump sum to play with. 

Every so often debt collection companies write to their "clients" offering them money off their debt if they pay it all off in one go. For instance, if you owe £3,000 they may accept £2,000 in full and final settlement, because although your debt was £3,000 the debt management company probably didn't buy it for anywhere near that amount.

But you don't have to wait for the letter. If you call them up they will almost always have a deal for you and with a bit of haggling you can usually improve on that too.
"Well I've got this much, but my other creditor says they'll let me pay off their debt for this much, can you do me a better deal, and I'll give it to you instead?"
This way, your savings can literally save you more money. Just be careful to make sure you get their offer in writing, and that the offer says "in full and final settlement". The last thing you want is to hand over that money and lose any advantage you had or to suffer any come back in the future - you want the debt finished with.

Having come to arrangements with all your creditors, try and stick to them. Some companies treat you much better if you keep making payments month after month. They will often write to you every 6 or 12 months wanting to go over your details again and renegotiate terms. This is usually a blatant attempt at squeezing yet more money out of you.

If your disposable income has increased in the meantime, then sure, pay off more of your debt sooner with bigger payments, (and you could also put more into your slush fund too). However, if things haven't changed, write to them stating as much, pointing out you've kept to your agreement so far and upping your payments would become unaffordable for you. They'll probably settle for this if you have a good payment history with them, otherwise you might have to argue your case more strongly. I did this once by pointing out my son had just been born and things were much tighter than they were. Use your imagination.

Another good reason to keep to payment schedules, as mentioned earlier, is that many waive the interest, however, some of them also have dodgy practices concerning this if you miss a payment. For example, one debt collection company I am familiar with, have been accused of sharp practice - When one of their "clients" missed a payment after almost clearing their debt, they suddenly found a large interest debit applied to their account that represented the interest that would have been charged over the whole term of the agreement. The client took this to the OFT who are now looking into this.

Lastly, there are times when the sums just don't work. It may be that after increasing your income, decreasing your outgoings and having a good go at renegotiating all your debts, there just isn't enough money to go round. In a case such as this, you might not be able to work your way out of the hole and may have to take more drastic actions instead, such as selling your house, coming to a voluntary arrangement or even bankruptcy. Unfortunately, these latter options are beyond my remit and if this is you, I would recommend you seek professional advice.

Otherwise, keep at it. It takes time, but so long as you put your own plan into action, you will one day wake up with no debt left to pay...

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