Prioritizing debt and knowing your rights can help your family make the best of a bad situation.
Know what comes first
High-priority debts are those whose non-payment leads to immediate serious consequences. Non-payment of a mortgage, car loan or rent can quickly lead to loss of a place to live or a car to get to work. If a family cannot afford to pay all their obligations, low-priority debts — such as credit card debts and medical bills — should be put off until the family deals with high-priority issues.
Rather than repaying the most aggressive debt collector first, be guided by your own priorities as to when you repay debts. You can stop the annoying collection calls — federal law gives you the right to tell collectors to stop contacting you.
Paying low-priority debts that are already months delinquent will not help your credit score. By the time you are hounded by debt collectors about a credit card debt, that debt has lowered your credit score. Additionally, if making a credit card payment prevents you from paying a mortgage or car loan, your credit score may not only get even worse, but you may face foreclosure or repossession.
Don’t let debt collector threats of a lawsuit result in wrong decisions. These threats often are a bluff, particularly for small debts. If you are sued, defend yourself and try to find a lawyer — creditors often lose interest in a case when the consumer defends with the help of a lawyer. Your local bar association, a legal services program or the National Association of Consumer Advocates may help you find a lawyer.
Know your options with different debts
There are a surprising number of protections to help you repay federal student loans. You may be able to cancel your debt if, for instance, your school closed while you were attending or you have a disability that limits your ability to work. You may be eligible for a payment plan that is reasonable for your level of income. See www.studentloanborrowerassistance.org for details.
If you are behind on your mortgage payments, contact your loan servicer. Whether you have a VA, FHA or another type of mortgage, you often will be able to delay, spread out or catch up on payments. Fannie Mae and Freddie Mac now offer a “flex modification.”
In many states, utilities cannot turn off your gas or electric utilities during extreme heat or cold periods. Most states also allow you to avoid utility termination by entering into a repayment plan. Some offer protections or reduced rates for low-income, elderly or disabled households or if there is a serious illness in the family.
If your medical debt is from a non-profit hospital, you may be eligible for financial assistance. If you apply, while the hospital determines if you are eligible, it cannot sue you or report the overdue debt to a credit reporting agency. No medical debt should be included in your credit report until it is 180 days overdue.
A bankruptcy filing can help you save your home or stop a wage garnishment, but is usually unnecessary if you are exempt from collection or are just worried about debt collectors. Find a bankruptcy attorney through www.nacba.org.
When it comes to overcoming and managing debt, the best strategy is to understand what you should prioritize and how to look out for yourself when it comes to different debts.
SOURCE: National Consumer Law Center, [email protected]