Talking with Creditors

When your income drops and you realize you can't pay all your bills, it's important to face your debts and know how to talk to your creditors.

Your past experiences with creditors are important. If you have consistently paid bills when due, your creditors will be more cooperative than if you were late or didn't make regular payments. Creditors are in the business of lending money and/or providing services. They want to keep your business, but they also want to get paid.

Contact your creditors immediately; don't wait for them to contact you. Explain your current situation. Tell them your family income is reduced and you are not able to keep up with your payments. Frankly discuss your future income prospects so you and your creditors can figure out solutions to the problem. Most creditors would prefer to receive smaller payments on a regular basis than to begin expensive collection procedures.

Where to Begin

Before you and your creditors agree on a reduced payment or some other solution, determine how much money you have to pay off your debts. Figure out how much income you can count on each month and how much you need to pay for your essential monthly living expenses. You'll need to know who and how much you owe, as well as how you plan to pay them. "Deciding Which Bills to Pay First," another section of this manual, can help you review your family situation and figure out a plan to divide your income to pay your family monthly living expenses and set priorities for paying bills.

Contacting Your Creditors

Once you have gathered the information you need, contact each creditor. Explain your family's situation and work out a solution.

Be prepared to explain the following:

• The reason you cannot pay.

• Your current income and prospects for future income.

• Other obligations.

• Your plans to bring this debt up-to-date and keep it current, including the amount you will be able to pay each month.

Visit local creditors in person. Visit the loan officer at your bank or credit union, the credit manager of local stores, and the budget counselor at the utility company. Don't forget creditors like your dentist, physician, clinic and hospital.

Contact out-of-town creditors by phone or letter. If you phone, write down the name and title of the person to whom you talked. Follow the conversation with a letter summarizing the agreement between you and the creditor. Keep copies of your correspondence as well as any reply.

Use the sample letter on the next page as a guide when writing to creditors. You may also use it as an outline of what to say when talking to a creditor.

As you negotiate with each of your creditors, don't agree to any plan simply to get off the hook. Be sure you will be able to follow through on the agreement. Establish a payment rate that is acceptable to both you and the creditor.

Here is a list of some alternatives to consider when negotiating with our creditors:

Reducing the monthly payment

• Refinancing the loan

• Deferring a payment for a short time if you expect your income will increase soon

• Reducing or dropping the late charges

• Paying only interest on the loan until you can resume making monthly payments

• Voluntarily surrendering or giving back an item purchased on credit.

• Selling the item and using the cash to satisfy, or partially satisfy, the debt (you are still responsible for any remaining balance).

Not all creditors will be willing to accept alternatives. However, they'll be more likely to work with your family if you contact them before they contact you. They all want their money and would rather get some money on a regular basis than have to begin collection procedures.

If you fail to follow the plan that you and your creditor agree upon, you will hurt your chances of getting future credit. Tell your creditors about any changes that may affect your payment agreement. If you owe a large amount of money, and if your creditors won't accept reduced payments, you may have to consider more extreme alternatives such as bankruptcy.

Sample Letter to Creditors

Use this example as a guide when writing or talking to creditors. Fill in the specifics of your family's situation in place of the information in parentheses.

Your Address

Your City, State, Zip

Company Name

Street Address

City, Sate, Zip

Attention: Delinquent Account Representative

Subject: Your Name

Your Account Number

The purpose of this letter is to inform you that our family is having some budgeting and debt problems. I am having trouble making my minimum monthly payment as a result of (crop loss, illness, etc.). I hope we will be able to agree upon an acceptable restructured debt payment plan.

I have taken a careful look at our financial situation. We have set up a realistic minimum budget for our living expenses and have developed a restructured debt payment plan. I am hoping you will accept a reduced payment. Amounts will be increased as soon as possible until the debt is totally repaid.

We owe (12 creditors over $7,500). Our asset value is less than ($3,000). Our only assets are (a car with a Blue Book value of $1,000, some home furnishings worth $1,500 and our family's clothing). Our monthly income is ($708). We have ($242) left over after basic living expenses for restructured debt payment plan. I would like you to accept a partial payment of ($50) per month to repay our obligation. You may expect the first payment on (date).

I hope you find this plan acceptable. I look forward to your letter of acknowledgment.

Thank you.

Sincerely,

Your Name