Escape Debtors’ Hell: The Keys to Freedom

Debtors’ Hell: That place where the mail stacks up on the counter…unopened. The place where you’re afraid to answer the phone even though it rings twenty or thirty times a day and the answering machine receives no messages…only hang ups. The place where you lay awake at night terrified of what’s going to happen tomorrow. You’re afraid to charge anything on your cards because you wonder if this is the time that it’s finally going to be turned down. Afterall, you’re too afraid to find out what your credit card balance really is. And, the last few times you’ve applied for credit, you’ve been denied.

Credit Collectors: Worse then lawyers and politicians. They make demands, call you names, and threaten to call your boss and get you fired. They threaten to take your car, your house, and your self-respect. They threaten to take you to court and you fear that they will. What do you do? How do you get them to leave you alone?

Bankruptcy: According to Wikipedia, Chapter 7 and Chapter 13 Bankruptcy are the most common types of bankruptcy in the United States. Chapter 7 is bankruptcy where all debts are liquidated. Chapter 13 is where a payment plan is established. If you are in debtor’s hell, bankruptcy may seem like the best option. However, bankruptcy is the worst kind of solution. Bankruptcy lasts for years…ten years according to the FDIC’s Fair Credit Reporting Act. Imagine…the next ten years, you will be turned down for every decent credit card, loan and line of credit imaginable. Your interest rates will be double what someone with “OK” credit gets, and you will be even more stressed because you won’t have that “emergency card” to fall back on in hard times. At the end of ten years, your credit will finally begin to recuperate, and after thirteen years, your credit may be decent enough to get a car loan with a 12% interest rate.

The Alternative: Settle and be back in great standing in seven years. That’s right, you can get out of hell, and you can do it much sooner then you think. How? Read on.

Your Rights

Although every state has different laws and rights regarding Consumer Debt, there are some basics that you should be aware of. Creditors don’t want you to know you have these rights, because Consumer Knowledge takes away their power. The five most empowering rights are as follows:

1. A Creditor cannot take a Consumer to court unless they are located in the same state. This is the rule for most states, and you can find out your exact rights from your local DA’s office if a Creditor is telling you otherwise.
2. A Creditor cannot call you if you tell them not too. By calling you after you ask to be contacted only by mail, they are harassing you. Depending on the state, you would have a case against them.
3. A Creditor cannot call your workplace and talk to your boss. Again, this is harassment.
4. A Creditor cannot garnish your wages unless they have taken you to court and won. Unless the court system is involved, your work is not allowed to garnish your wages without a court order.
5. According to the FDIC, the Fair Debt Collection Practices Act was designed to “eliminate abusive, deceptive and unfair collection practices” of third party collectors. This means, collection agencies that purchased your debt from original Creditors and Lenders have LESS rights when it comes to collecting your debts.

So keep this in mind as you take the next steps toward freedom.

Dealing with Open Credit Accounts

When it comes to Open Credit Accounts, you have more power then you think. You see, the creditor does not want to close your account, and they do not want to piss you off. They don’t make money if they lose you. So keep that in mind when you are dealing with them, and be willing to keep calling and asking for what you want even if Customer Service does not comply immediately.

1. Call your creditors and ask them to lower your interest rates. It’s common for a Creditor to raise your interest rate if your payment arrives even 24 hours late. Many Consumers never notice because they don’t bother to look closely at their statements. You have the right to ask them to lower that rate, and often they will do it. The only instances where they might refuse is if your balance is high, or if you are often late with your payments.
2. Consider asking them to raise your limit while you have them on the phone. As crazy as that sounds, 30% of your credit score is based on the amount of debt compared to the amount of credit available (according to MyFico.com). The magic number for improving your credit score is to owe 35% or less of what is available. By having your limit raised, your debt percentage will drop and your credit score can go up.
3. Transfer balances to one card and take advantage of zero percent financing. Once a credit card’s balance hits zero, the Creditor will try to entice you to transfer balances back. When you pay off one card, call that company and ask what transfer deals they would be willing to offer and if they would be willing to raise your balance. It is your best chance to get zero percent financing even if it is only for six months and your best chance to lower your debt percentage quickly. Keep in mind, there will be a transfer fee, but it can be a huge monthly savings.
4. Pay down the card with the lowest balance first. This will free the card up for balance transfer specials and raising limits, while also being great for “emergencies” and helping to relieve that feeling of drowning in debt.
5. DO NOT CLOSE YOUR ACCOUNTS. This brings down your score because it lowers the available credit (raising your debt percentage), and it closes out that card’s history, which determines 15% of your credit (also according to Myfico.com).

Dealing with Collection Companies

When it comes to collection agencies and creditors, they believe one thing: “This person is not going to pay as promised so get whatever you can now. It will cost too much to take them to court.” Keep that in mind when dealing with them and don’t let them intimidate you into doing something that you cannot afford to do.

1. Call your creditors and find out who has your account. If your creditor refers you to a collection agency, and that collection agency no longer has your account, ask them who does. Eventually, you will find the company you need to deal with. (This information is also available on your Credit Reports.).
2. Ask them how much they are willing to settle for. Do not be the first to offer a settlement amount. The collection agency bought your account for pennies on the dollar and they have already established a formula for the lowest possible settlement that will still make them a profit. This amount can be as low as 30% of what you originally owed. Imagine, for every $1,000, you could pay them $300 and have that debt wiped out forever. (Of course, it won’t fall off your credit reports for seven years unless you dispute it.)
3. (They can only take three postdated checks.) Have you ever noticed on an infomerical, the sales company always says “Only four monthly payments of $X. BUT, call now and we will make one of those payments for you. That’s right…only THREE monthly payments of…” They do that because it’s the law. No company is legally allowed to take more then three postdated checks for an agreed upon amount. They can take one payment now, then get an extra three postdated checks from you, but they cannot take more then three. This means Power. If they settle with you, they know they can only do three postdated checks. So, they will try to make it an amount you can afford. Play hardball. See how low you can get them before you give them your checking account information. If they try to take more, you can dispute it with your bank. Afterall, your signature will not be on those checks and you will maintain control.
4. Ask them to put it in writing and fax or email it to you before you make a payment. If this is not available, ask them to mail it ASAP. Give them one partial check over the phone, but let them know that if you do not receive the letter within the next few days, you will put a stop payment on it. If you do not get that letter, the collection agency may take your money and sell your account to another collection agency, and you will have no proof that your account was settled.
5. Once a Collection Agency is paid, dispute that company on your Credit Report. You can have them removed and this will bring your credit score up.

Now that you have the keys out of Debtor’s Hell, free yourself. You can do it and you can do it quickly. You have the power.